Will the NFP Pull the S&P 500 Down This Friday?

Will the NFP Pull the S&P 500 Down This Friday?

The S&P 500 has been on an impressive upward trajectory, with no 5%+ drawdowns for over 200 sessions. As the index approaches 4,500 for the first time, concerns are mounting about when this hot streak might end. The market’s rising momentum has left investors wondering if the S&P 500 will hit a wall, particularly at the 4,500 mark, or if the growth will continue. Currently sitting at 4,528.79, the S&P 500 is up another 19 points.

However, this consistent rise has raised some alarms. While market fluctuations are unpredictable, upcoming US economic reports could provide some insight into potential shifts in market sentiment.

Key Reports This Week

This week is relatively quiet on the US economic reports front, but some key data will be released on Wednesday:

• ADP Employment Change: This report, which is a precursor to the more widely watched Non-Farm Payroll (NFP) data, is forecasting a 500K increase in private sector jobs for August. The ADP report had previously missed the mark by a large margin, reporting 330K jobs added versus 695K expected. If this month’s ADP figure comes in at 500K, it could signal a significant recovery in job placements after a steady decline since May’s record of 882K jobs added.

Non-Farm Payrolls (NFP) on Friday

The big focus this week will be Friday’s NFP report, with the consensus forecasting 750K jobs added to the US economy for August—though this would be more than 100K lower than last month’s figures. However, the NFP report in July far exceeded expectations, driving optimism in the USD and spurring market reactions. The real question is: How will the S&P 500 react to this month’s report?

NFP Impact on the S&P 500

Looking at previous NFP reports, a pattern emerges:

• When NFP Disappoints: If the report comes in below expectations, the S&P 500 tends to face a rough few days. This was evident in May when the NFP missed significantly (266K vs 978K expected), causing the S&P 500 to drop from 4,233 to 4,058 over three days. The index didn’t recover until the day before the next NFP report.
• When NFP Beats: When the NFP beats expectations, the S&P 500 has still fallen, but by a smaller margin compared to disappointing reports.

Given these trends, the S&P 500’s reaction may hinge on whether the NFP report significantly exceeds expectations. A major positive surprise (over 1 million jobs added) could lift the market, while a report in line with expectations could lead to minimal gains, possibly benefitting indices like the Russell 2000 more than the S&P 500.

Conclusion

The S&P 500 is in a delicate position, with the upcoming NFP report likely to influence its direction. If the report disappoints, the index could experience some selling pressure. If it beats, the reaction may be muted unless it significantly surpasses expectations, possibly boosting small-cap stocks more than the broader market. Keep an eye on the NFP data this Friday for any signs of a shift in market sentiment.