NASDAQ Composite Faces Downside Risk if Fed Fails to Deliver Anticipated Pivot

The major U.S. stock indexes are called lower based on the pre-market trade after data released by ADP showed private payrolls rose more than expected in October. The results of the report dampened expectations that the Federal Reserve will not have enough reason to tone down its aggressive tightening path.

At 13:30 GMT, the blue chip Dow Jones Industrial Average is trading 32595.00, down 90.00 or -0.28%. The benchmark S&P 500 Index is at 3859.00, down 7.00 or -0.18% and the tech-heavy NASDAQ Composite Index is trading 11324.25, down 7.75 or -0.07%.

Strong Private Jobs Data Ahead of Fed Rate Decision

The details of the ADP National Employment report showed private payrolls rose by 239,000 jobs last month. Economists polled by Reuters had expected an increase of 195,000 jobs.

Today’s report comes on the heels of the JOLTs report that showed a jump in U.S. monthly job openings. This report signaled strong labor demand and provided further evidence that the central bank’s rapid interest rate hikes have yet to significantly slow the economy.

Labor Market Data Creates More Uncertainty for Fed

The market clearly expects the Federal Reserve to raise its benchmark interest rate 75-basis points when it makes its announcement at 18:00 GMT. What’s unclear is what it is going to do about slowing the pace of rate hikes.

Prior to today’s announcements, traders were split on the odds of a 50 basis point or 75 basis point rate hike in December, according to the CME Group’s Fedwatch tool.

If the Fed remains data dependent then the labor market data is not good. It shows that unemployment is still low while inflation is too high. This suggests the Fed has no room to pivot at this time, lowering the odds it will announce a slowing in the pace of its rate hikes.

Daily Forecast

The bulls are hoping the Fed moves to slow down the pace of rate hikes. However, policymakers may not directly state that. They are more likely to say that they discussed a slower pace, but did not make a final decision. This may be enough to goose the market a little higher over the near-term.

The most bearish thing the Fed could say is that it did not discuss a slower pace of rate hikes, but rather the job market is strong enough and inflation remains high enough to remain aggressively hawkish. This could crush stock prices over the near-term.

The direction of the stock market is going to be determined by the tone of the Fed in its statement and the words of Fed Chair Jerome Powell in his post-meeting brief.