Market Expects Lousy Jobs News and a Dovish Fed, but Can Indexes Keep Rising?

The S&P 500 reached a record high of 6502.08 on Thursday amid expectations of a weak August jobs report and a Fed interest rate cut on September 17.

It is estimated that there were about 75,000 new jobs added in August, which would be the fourth month in a row with growth under 100,000. However, what will be of particular interest will be revisions to prior reports. Goldman Sachs is predicting a major downside revision, and the market is acting like a weak jobs report is already a done deal.

Early on Friday morning, Fed Funds futures indicate a 99.4% likelihood of a Fed rate cut in two weeks. There is also now a 55% chance seen of an additional cut on October 29 and a 46% chance of a third cut in December.

Following Jerome Powell’s comments at Jackson Hole, the market is confident of the Fed’s dovish tilt, and that has been fueling a steady uptrend.

The key issue now is at what point does the market fully discount a series of rate cuts? When does poor economic news start to be a negative factor rather than a positive one because it pushes the Fed to act?

A very weak jobs report will increase the likelihood of a series of cuts, but Fed dovishness is already heavily anticipated. Worries about tariff-driven inflation have been totally set aside, and now the only real issue of concern is how fast the employment market is deteriorating.

With the indexes sitting near highs, the potential of negative seasonality, and a highly anticipated news event, there is strong potential for a "sell the news" reaction to the jobs report Friday morning. A weak jobs report may ensure Fed dovishness, but there are some very real negative repercussions to slow growth that the market appears to be ignoring for now.

The biggest positive the market has going for it is that the bears just keep on trying to call a market top and are trapped each time that it fails to develop. They end up providing more fuel for an uptrend and make bulls worry that they are not bullish enough.

I expect to see a volatile response to the jobs news and will be watching closely for a large intraday swing to develop.

At the time of publication, Rev Shark had no positions in any securities mentioned.