Data Must Keep Delivering for the S&P 500 Market Rally to Continue

Barclays strategists have recently expressed increased confidence in the likelihood of a soft landing for the U.S. economy, largely due to the Federal Reserve’s recent 50 basis point interest rate cut, which indicates support for economic growth, along with unexpected stimulus measures from China.

However, with the S&P 500 trading at 5,700 and stock prices elevated, they caution that the margin for error is tight, emphasizing that economic data “needs to keep delivering.”

In this context, the upcoming Nonfarm Payroll (NFP) report scheduled for Friday is deemed crucial, with Barclays’ economists projecting September’s figure to be around 150,000, reflecting a slight increase from August’s numbers.

They noted, “The potential resiliency in the labor market and the Fed’s willingness to support it indicate that U.S. growth remains robust, and forecasts continue to show upward revisions.”

Conversely, Europe’s growth outlook appears less favorable, despite both the European Central Bank and the Bank of England commencing their rate-cutting strategies prior to the Federal Reserve.

Recent economic data surprises in the U.S. have been positive, while Europe continues to grapple with declining activity. Notably, although bond markets in the U.S. and Europe have both adopted a more dovish stance over the summer, the U.S. market is projecting a greater number of future rate cuts compared to its European counterpart.

September’s jobs report is anticipated to reflect a trend similar to August’s, indicating a slowdown in hiring and modest wage growth. Like Barclays, consensus estimates are predicting an increase of 150,000 nonfarm payrolls, up slightly from 142,000 in August, with the unemployment rate remaining steady at 4.2%. Wage growth is expected to rise by 0.3% for the month and match the annual increase of 3.8% from the previous month.

If the data aligns with these expectations, it would afford the Federal Reserve the flexibility to continue reducing interest rates without the concern of falling behind or inadvertently triggering a recession.