The stock market today climbed higher on Thursday as investors anxiously awaited Friday’s critical jobs report, which could determine the direction of interest rates and the economy in the coming year. A wave of optimism swept Wall Street, lifting the S&P 500 by 0.7% while the tech-heavy Nasdaq zoomed 1.1% higher.
Yet uncertainty still looms over this sudden boost of confidence. Traders remain torn between hopes of a soft economic landing and fears of a potential recession. Each new piece of data pulls the market in a different direction, creating volatility.
All this back-and-forth stems from one huge question: Will the Federal Reserve stop raising interest rates soon? The answer largely hinges on the strength of the job market.
For months, the Fed has been aggressively hiking rates to fight sky-high inflation. But signs are emerging that this tightening policy is finally cooling down the economy and employment. This week’s encouraging labor data sparked speculation that the Fed may ease up on rate hikes as early as December 14 at its final policy meeting of 2022.
However, policymakers won’t decide anything until they parse Friday’s pivotal jobs report. Any indicator that the job market is weakening would likely prompt a pause in rate increases or smaller hikes. Conversely, continued strong hiring would mean more jumbo interest rate jumps are ahead.
The stakes couldn’t be higher for stock market bulls rooting for rates to fall. Lower rates would provide huge relief for struggling tech companies and indicate the economy is headed toward a soft landing. But if the Fed keeps its foot on the brakes, recession fears could crush the recent rally.
All About the Jobs Data Investors displayed growing optimism as they awaited the last major labor data release of 2022. The weekly jobless claims report showed a mild 2,000 rise in unemployment filings. At 220,000, this number aligns perfectly with expert forecasts. The claims also remain near historic lows, underscoring the enduring strength of the job market.
However, Wall Street is far more focused on the comprehensive nonfarm payrolls announcement due Friday morning. This monthly breakdown details key metrics like the unemployment rate and wage growth, providing critical economic context.
In November, the sizzling labor sector showed its first convincing cooling signs in nearly two years. Job gains slowed substantially and wage growth decelerated – two crucial changes policymakers want to see before declaring victory over inflation.
Economists predict Friday’s report will show further easing. Barclays analysts forecast 250,000 new jobs added in November, down from 261,000 the month before. Meanwhile average earnings are expected to rise just 0.3% over the previous month versus 0.4% in October.
If these predictions hold true, markets would likely roar higher as traders up their bets on an impending Fed pivot. But there’s still a risk the data defies expectations.
Many variables influence hiring patterns, especially around the volatile holiday season. Plus, Fed officials have signaled they want unequivocal proof of a weakening jobs sector before changing course on monetary policy. So one decent report may not suffice.
The Market Hangs in the Balance As the clock ticks down to Friday’s open, investors find themselves obsessing over jobs statistics that could steer the whole stock market and economy.
Unhinged inflation dominated 2022, sinking portfolios and forcing the Fed to enact restrictive policies that now verge on dangerous overkill. But the long fight has all led up to this moment.
After months of rate hikes pushed the economy to the brink of recession, it seems prices and employment are finally responding according to plan. Now winter winds carry whispers of the Fed “pivoting” to looser policy in 2023.
If the jobs data affirms this cooling trajectory, euphoric investors may launch stocks into the next major bull run. But if hiring remains stubbornly strong, officials will keep rates pinned at higher levels – threatening corporate profits and prolonging volatility.
So much uncertainty condenses around these numbers. But by early Friday afternoon, the truth will emerge.
Either a Goldilocks soft landing still seems in reach, opening the door for a peaceful and prosperous new year. Or the Fed’s war against inflation rages on, leaving Wall Street hostage to hawkish rate hikes and delicate economic conditions for months to come.
Right now markets lean toward the upbeat scenario. But it will require perfectly balanced jobs data landing not too hot nor too cold. Given recent volatility, investors brace for any surprise that could dashed hopes and reverse the rally.
Yet no matter what tomorrow brings, this jobs report will set the tone for December and chart the course ahead in 2023. Traders can only watch, wait and hope the numbers align in their favor.
