The U.S. market suddenly plunged, effecting across Asia-Pacific markets

At the same time, U.S. and European stock futures fell noticeably, with Dow futures down 0.2%, S&P 500 futures dropping 0.3%, and Nasdaq futures declining nearly 0.5%. In Europe, Euro Stoxx 50 futures slipped 0.65%, FTSE 100 futures dropped 0.49%, and DAX futures in Germany fell 0.63%.

The S&P 500 and Nasdaq 100 had their worst September starts since 2015 and 2002, respectively. With inflation expectations stabilizing, attention has shifted to the health of the economy, as signs of weakness could accelerate policy easing. Although interest rate cuts typically bode well for stocks, that’s not always the case when the Federal Reserve is rushing to prevent a recession.

Traders are expecting the Fed to cut rates by more than two percentage points over the next 12 months, the largest non-recessionary decrease since the 1980s. BMO Capital Markets' Ian Lyngen and Vail Hartman noted that panic following the latest rise in the unemployment rate will leave traders "on edge" ahead of Friday's nonfarm payrolls report.

Non-Farm Payrolls Ahead

Plenty of economic news will keep commentators busy this week, culminating in Friday’s closely watched jobs data. While such data is a poor indicator of future returns, it can impact investor sentiment and spur investment market volatility. You can find what is happening this week on Morningstar’s new market calendar.

“This week’s jobs report, while not the sole factor, could be crucial in determining whether the Fed cuts rates by 25 or 50 basis points,” said Glenmede’s Jason Pride and Michael Reynolds. “Even a modest signal from this week’s report could be a key decision point for the Fed on whether to take a more cautious or aggressive approach.”

Morgan Stanley strategist Michael Wilson, who predicted last month's market correction, said that if Friday’s jobs data show signs of economic resilience, companies that have lagged behind the U.S. stock rebound could get a boost. Stronger-than-expected employment numbers could also give investors "greater confidence that growth risks have receded."

August’s jobs report

According to Bloomberg’s median economist survey, August’s jobs report is expected to show the U.S. added about 165,000 jobs, a modest gain above July’s 114,000. However, the three-month average job growth would slow to just over 150,000, the lowest since early 2021. The unemployment rate is projected to dip slightly from 4.3% to 4.2% in August.

Renaissance Macro Research’s Neil Dutta suggested that while the Fed will eventually opt to cut rates, a series of 25-basis-point cuts may not be sufficient. In this scenario, it would take a long time to bring the funds rate back to neutral, and policy would remain restrictive, posing downside risks to economic growth.

He added, “This slow approach could push unemployment even higher. So, if they don’t cut by 50 basis points in September, they’ll need to make a 50-point cut later this year.”