By Lewis Krauskopf
NEW YORK (Reuters) -Investors will seek clues about the health of the U.S. economy in the coming week following worrisome labor market reports and technology-led turbulence that has knocked the stock market off record highs.
The S&P 500 ended Thursday with a loss and looked set for a weekly decline. The benchmark index was last down over 2% from its all-time closing peak on October 28 even after a generally strong third-quarter earnings season for large U.S. companies.
This week, concerns about expensive equity valuations, especially for high-flying stocks linked to enthusiasm over artificial intelligence, were exacerbated by tepid jobs data, including a report that showed surging layoff announcements from U.S. employers.
Alternative data released by private sector bodies have become more important for investors because the U.S. federal shutdown that began on October 1 has limited government releases.
“We’re not getting a lot of economic data,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “At current valuations and the kind of gains that we’ve seen… investors are just starting to be a little bit more cautious. I don’t think that is bad, but it is coming at a time where there is growing uncertainty around the pace of growth in the economy.”
Investors were gauging whether the pullback in equities represented profit-taking and a healthy reset after an extended climb, or the start of a more severe slide. Fears that stocks are in an “AI bubble” have kept Wall Street on edge, with the benchmark S&P 500 up 14% year-to-date and 35% since its low for the year in April.
The S&P 500 technology sector, which has led the bull market that began over three years ago, has been hit harder in this latest drawdown, falling more than 5% since last week.
A series of reports on Thursday suggested deteriorating U.S. labor market conditions. Data from workforce analytics company Revelio Labs showed 9,100 jobs were lost in October, while U.S. employers’ planned layoffs soared to over 153,000 last month, global outplacement firm Challenger, Gray & Christmas said. The Chicago Fed estimated that the U.S. jobless rate likely edged up in October to the highest in four years.
That data came a day after the ADP National Employment Report showed private employment rebounded by 42,000 jobs in October.
The Challenger layoffs report, combined with the lack of government jobs data, “raises a red flag in terms of whether or not the labor market has really stabilized,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
Next week would have been a busy week of economic data, with government reports due on consumer and producer prices and retail sales. Those releases are poised to be delayed due to the shutdown. Investors will instead seek insight on the economy from traditionally more secondary reports, including the small business optimism index due to be released on Tuesday by the National Federation of Independent Business.
The lack of government data is muddying the outlook for the Fed, which must decide whether to cut interest rates again at its next policy meeting in December. After the central bank eased by a quarter percentage point for a second straight meeting on October 29, Fed chair Jerome Powell said another such reduction was not a foregone conclusion.
“The Fed needs help trying to figure out what’s going on in the jobs market. They’re getting seemingly conflicting signals and what they decide to do in December has ramifications obviously for the stock market,” said Chuck Carlson, chief executive officer at Horizon Investment Services .
Fed fund futures late on Thursday were pricing in a roughly 70% chance of a rate cut in December. Before Powell’s October comments, investors had viewed such a cut as almost a done deal.
Investors were watching for developments that might suggest the end of the shutdown, which this week became the longest in U.S. history.
Focus was also on remaining high-profile quarterly reports, as a stellar earnings season in general nears a close. With 424 companies in the index having reported, 83% posted profits above analyst expectations, which would be the highest beat rate since the second quarter of 2021, LSEG IBES said on Thursday.
Reports due next week include Walt Disney and tech stalwart Cisco Systems. Those lead up to the quarterly report the following week from semiconductor firm Nvidia, the largest company in the world by market value that has symbolized investor enthusiasm for AI.
“I would just expect a little bit more volatility around technology leaders and technology as a whole heading into that Nvidia report,” Saglimbene said.
(Reporting by Lewis Krauskopf; Editing by Alden Bentley and David Gregorio)
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