Benchmark S&P 500 Index Investors Brace for Volatility Ahead of August NFP Data

U.S. stock index futures are edging higher in a nervous trade as investors eyed recent six-week lows on Friday ahead of key U.S. jobs data, while bracing for aggressive rate hikes from the Federal Reserve.

Today’s jobs report, due to be released at 12:30 GMT, is expected to be the source of early volatility. However, due to the long U.S. holiday weekend, investors should also be prepared for the possibility of a muted reaction.

In other words, due to this week’s steep sell-off and Monday’s U.S. bank holiday, we may not see the true reaction to the report until next week.

We do know this, however. Given expectations of aggressive Fed rate hikes, a strong jobs report could actually be bearish for stocks. Investors are going to have to deal with the fact that good news about the jobs market will actually be bad news for stocks. This is because a robust jobs market will give the green light to the Fed to keep on tightening in an aggressive manner.

At 12:00 GMT, Dow Jones Industrial Futures are trading 31664.00, up 1.00 or +0.00%. S&P 500 Index Futures are at 3969.50, up 0.75 or +0.02% and NASDAQ Composite Futures are trading 12279.25, down 13.00 or -0.11%.

What to Expect from the Non-Farm Payrolls Report

Today’s U.S. Non-Farm Payrolls report will offer a key insight into the likely approach from the Federal Open Market Committee (FOMC) to its next interest rate decision on September 21.

Economists forecast that 318,000 jobs were added to the U.S. economy in August, less than the shock 528,000 added in July according to Dow Jones, while unemployment is expected to remain at 3.5%. Average Hourly Earnings are predicted to have risen 0.4% in August, slower than the 0.5% increase in July.

September Rate Hike Expectations Remain Firm

Ahead of the jobs report, futures markets have priced in as much as a 75% chance the Fed will hike by 75 basis points at its September policy meeting, compared with a 69% probability a day ago.

Daily Forecast

Remember that good labor market data will be bad for stocks because it will grant permission to the Fed to raise rates aggressively at the September 20-21 policy meeting.

Also keep in mind that a counter-trend rally is possible due to low volume ahead of a long U.S. holiday weekend. We may not see the true response to the numbers until next week. Furthermore, today’s report may have already been priced into the market given this week’s steep decline.