Job reports ahead: strategies for navigating this week's market shake-up

Moomoo Learn wrote a column · Oct 31 15:00

Next week could be one of the most exciting times for global stock markets! Two major events— the U.S. election and the US Fed FOMC meeting - could significantly impact market trends.

Before these events, we have an important economic announcement this Friday: the U.S. October Non-Farm Payroll (NFP) report.

1. Why is this Non-Farm Payroll report important?

2. What indicators should investors pay attention to?

3. How should they analyze and prepare?

In this article, let’s break it down.

Why this NFP report matters

This NFP report lands at a particularly sensitive time - just before the election and the Fed’s policy meeting.

The report gauges the health of the labor market. Although it doesn’t directly impact the stock market, it heavily influences monetary policy, providing the Fed with a basis for rate decisions.

In September, the Fed initiated a rate cut cycle, reducing the benchmark rate by 50 basis points to a range of 4.75%-5%. This cut was larger than expected, as the Fed aimed to cushion against potential employment downturns.

Job reports ahead: strategies for navigating this week's market shake-up

Since then, however, U.S. Treasury yields have surged back to around 4.2%, catching many off-guard.

Two main factors are at play: a stronger-than-expected September NFP report, which showed a 254K job increase, and a rising probability of a Trump victory, with policies likely to fuel inflation, thus reducing market expectations for further rate cuts.

This Friday’s October NFP report could, therefore, provide crucial insights into whether U.S. Treasury yields might peak in the near term.

Key indicators to watch and analysis

The NFP report comprises multiple data, but investors should primarily focus on two:

– Non-Farm Payrolls: Excludes agricultural employment, representing job growth across manufacturing, construction, and services sectors.

– Unemployment Rate: A reflection of labor market tightness.

Here’s how to interpret the data:

– Higher job growth and a low unemployment rate may suggest a strong labor market, signaling less urgency for rate cuts.

– Lower job growth and a high unemployment rate could indicate potential economic downturn risks, strengthening the case for further rate cuts.

However, short-term market fluctuations will also depend on whether the data meets or misses expectations.

Investors can find the market expectations data in moomoo U.S. stock economic calendar.

According to forecasts, the market expects an increase of 111,000 jobs in October, with an unemployment rate of 4.1%.

– If the report surpasses expectations, a robust job market may reinforce expectations of a “soft landing,” potentially boosting U.S. stocks in the short term.

– If the report misses expectations, signaling a weakening job market, this would strengthen rate cut expectations, potentially benefiting sectors like U.S. Treasuries, small-cap stocks, and biopharma.

Potential investment strategies for different scenarios

How to prepare the NFP report will vary based on your assessment of the impact of the non-farm data on future market movements. There are three potential scenarios:

1. Above Expectations: Soft Landing Scenario

– If the NFP report shows stronger-than-expected job growth, it suggests that the labor market is solid and that the economy may be heading for a “soft landing”—a scenario where inflation eases without triggering a major economic slowdown. With a strong labor market, the urgency for additional rate cuts would be lower, as the economy appears resilient. This optimism could lead to broad stock gains, as investors may feel more confident in equities. For those unsure about specific stock picks, broad-market ETFs that follow the S&P 500 or NASDAQ 100, such as $Vanguard S&P 500 ETF (VOO.US)$ and $Invesco QQQ Trust (QQQ.US)$ , provide diversified exposure to large-cap U.S. stocks and are popular choices in this scenario.

2. Below Expectations: Rate Cut Trade

– If the NFP report comes in weaker than expected, it may signal that the job market is softening and that the economy could be slowing down. In this case, the Fed would be more likely to cut interest rates to support growth. Lower rates usually lead to higher bond prices, as yields and prices move in opposite directions. In this case, $iShares 20+ Year Treasury Bond ETF (TLT.US)$ (tracking 20-year U.S. Treasuries) could be a good option. Leveraged versions like $Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF.US)$ (3x long) and $Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV.US)$ (3x short) are also available but come with greater risk, making them less suitable for conservative investors.

3. Unclear Direction: Volatility Hedge

– If it’s difficult to interpret the NFP results, or if there are broader concerns about market stability, investors might expect more market swings and potential volatility. In this uncertain environment, adding a volatility ETF can help hedge against possible downside. Volatility ETFs like $ProShares Ultra VIX Short-Term Futures ETF (UVXY.US)$ track the VIX index (often called the "fear index"), which typically rises when the market experiences panic or rapid changes. If the market becomes highly volatile, UVXY and similar ETFs are designed to profit from these spikes in the VIX, offering some protection against a turbulent market.

Lastly, remember that markets are unpredictable. It’s important to assess your own risk tolerance, set profit and stop-loss levels, and avoid taking on excessive risk.

$S&P 500 Index (.SPX.US)$ $Dow Jones Industrial Average (.DJI.US)$ $Nasdaq Composite Index (.IXIC.US)$

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more