Nasdaq 100 and S&P500: Stock Market Faces Volatility as Payroll Data Looms Today

Stock Market Struggles as Investors Eye Labor Market Data

U.S. stocks struggled on Thursday as traders pulled back from risk assets amid growing concerns about the health of the U.S. economy. This sell-off comes ahead of Friday’s highly anticipated August nonfarm payrolls report. For the week, all three major indexes are in negative territory as investors prepare for the labor market data.

At 16:09 GMT, the Dow Jones Industrial Average is trading 40618.37, down 356.60 or -0.87%. The S&P 500 Index is at 5490.77, down 29.30 or -0.53% and the Nasdaq Composite is trading 17082.60, down 1.70 or -0.01%.

Weak Labor Data Fuels Economic Concerns

Thursday’s market action was influenced by conflicting signals from fresh labor market data, heightening concerns about the economy’s direction. According to private payroll data from ADP, growth slowed to its weakest pace since 2021, sparking fears that the labor market is losing momentum. However, weekly jobless claims fell slightly, offering a modest counterbalance to the gloom. This divergence raises questions about whether the Federal Reserve will need to adjust its approach to interest rates.

Markets have become increasingly sensitive to signs of economic deceleration, as evidenced by Tuesday’s sell-off, triggered by weak manufacturing data. This context has placed additional pressure on Friday’s nonfarm payroll report, which could offer a clearer view of the labor market’s condition. July’s disappointing job numbers fueled recession fears, adding volatility throughout August.

Services Sector Shows Modest Expansion

In more optimistic news, the U.S. services sector posted a slightly stronger-than-expected performance in August. The Institute for Supply Management (ISM) reported a services PMI of 51.5%, indicating modest expansion. Although up only marginally from July, this reading slightly surpassed economists’ expectations of 51%. Still, challenges remain within the sector, as the employment index dipped to 50.2% and both order backlogs and new export orders saw significant declines.

Sector Performance Mixed as Volatility Spikes

Sector-wise, the market painted a mixed picture on Thursday. Consumer discretionary stocks rose 0.84%, while consumer staples, financials, and healthcare sectors suffered losses. Notably, the health sector dropped 1.67%, followed by declines in industrials and materials. Technology stocks were also down, albeit slightly. The energy sector dipped as oil prices softened.

Among individual stocks, Tesla surged 4% after announcing plans to expand its full self-driving software into Europe and China by next year. Frontier Communications, on the other hand, dropped 8% after Verizon announced plans to acquire the company for $20 billion.

Market Forecast: Caution Ahead

Looking ahead, traders should brace for continued volatility, especially with the labor report set to play a pivotal role in market direction. With the Federal Reserve remaining cautious, any further signs of labor market weakness could push stocks lower in the short term. Expect heightened volatility and potential downside risks, especially if earnings results disappoint in the coming weeks. Traders may consider defensive sectors while remaining vigilant about macroeconomic data.

Technical Analysis

E-mini Dow Jones Industrial Average futures are headed lower at the mid-session. The price action suggests building downside momentum has put the 50-day moving average at 40381 on the radar.

Traders should prepare for two scenarios, following a test of this indicator. One, watch for a technical bounce. Since the main trend is up and buyers like the dips, the 50-day moving average seems like a pretty logical place to re-enter.

The second scenario is shorting weakness. Agressive traders may favor shorting a break through the 50-day MA. If this creates enough downside momentum then the 200-day moving average at 39397 will become the next major target.