Markets this week are focused on the nonfarm payrolls report to assess the balance in the labor market. Overly strong data could fuel inflation fears and weigh on equities, but if the unemployment rate remains stable, robust figures could instead support further gains in U.S. stocks.
The U.S. Bureau of Labor Statistics will release the highly anticipated May nonfarm payrolls data on Friday. Against a backdrop of ongoing U.S.-Iran geopolitical tensions and persistent inflation concerns, this report will provide a clear snapshot of the current state of the U.S. economy, with its outcome likely to directly influence U.S. equity market movements.
Economists broadly forecast that the U.S. added 85,000 nonfarm payroll jobs in May, with the unemployment rate holding steady at 4.3%.
Earlier this week, on Wednesday, ADP released its private-sector employment report, showing that the private sector added 122,000 jobs last month—above the market’s prior expectation of 110,000. Separately, another report from the Bureau of Labor Statistics revealed that U.S. job openings in April reached their highest level in nearly two years.
In a research note, Glenmede strategists Jason Pride and Michael Reynolds noted that markets are closely watching this nonfarm payrolls report to confirm that the U.S. labor market remains in a balanced state of gradual moderation, characterized by persistently low hiring and low layoffs across industries.
JPMorgan’s trading team has pre-calculated potential S&P 500 market reactions under different employment scenarios, outlining five possible outcomes along with their probabilities:
1. Probability: 40% — Nonfarm payrolls increase by 70,000 to 100,000; S&P 500 rises by 0.5% to 1%.
2. Probability: 25% — Nonfarm payrolls increase by 40,000 to 70,000; S&P 500 remains flat to declines by up to 0.75%.
3. Probability: 25% — Nonfarm payrolls increase by 100,000 to 130,000; S&P 500 fluctuates within a range of +0.75% to -0.25%.
4. Probability: 5% — Nonfarm payrolls increase by fewer than 40,000; S&P 500 plunges by 1% to 1.5% in a single day.
5. Probability: 5% — Nonfarm payrolls increase by more than 130,000; S&P 500 fluctuates within a range of -1% to +0.5%.
The team added, 'A significantly stronger-than-expected nonfarm payroll report would heighten market concerns about inflation, pushing U.S. Treasury yields and volatility higher, which would be bearish for equities; however, if employment surges without a noticeable rise in the unemployment rate, robust economic growth expectations could instead bolster U.S. stocks.'