Investors fearing a scary start to October should focus instead on Friday's jobs report

By Joy Wiltermuth

Jobs data still holds sway when it comes to the Fed and interest rates, making it crucial to a jittery market

Investors soothed by the quick recovery for stocks following a rough start to August and September were jolted once again in early October by unnerving developments at home and abroad.

Iran launched a missile attack against Israel on Tuesday, briefly sending stocks and bond yields lower, while the International Longshoremen's Association also began a U.S. port strike, unleashing potentially powerful ripple effects from Maine to Texas.

Adding to the tense backdrop, only five weeks remain before a divided nation heads to the polls to elect the next U.S. president. And if recent elections can be a guide, the outcome might not be clear before the Federal Reserve's next rate decision on Nov. 7.

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The barrage of recent bad news has triggered a seesaw in prices across financial markets. "All these things are impacting the markets and people's thought process," said Allison Walsh, investment product strategist at Income Research + Management.

Yet with all the uncertainty, one thing that investors shouldn't lose sight of is the significance of Friday's monthly jobs report for markets.

"I'm staring squarely at the labor market," said George Catrambone, DWS Group head of Americas fixed income and head of trading. "And a bite of that apple comes on Friday with non-farm payrolls."

Read: September surprise? U.S. jobs report holds key to Fed rate cuts.

Wall of worry

Past strikes have gotten resolved, albeit at higher labor costs. Recent geopolitical tensions briefly rattled markets, but stocks quickly resumed their climb to fresh record highs. Bond spreads, despite U.S. growth concerns, have been hovering around historic lows.

"It may be dangerous that there's complacency around these issues getting resolved," Catrambone at DWS said about labor strikes, geopolitical risks and other developments that in the past might have taken longer for markets to move past.

Ultimately, however, traders been rewarded for buying the dip, "time and time again," in the post-global financial crisis era, he said. "Likewise, they have not been rewarded for staying on the sidelines and being short, or not invested at all."

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In a similar vein, Walsh at Income Research said her team has been spending much of this year thinking about the more than $6 trillion sitting in cash-like money-market funds. "Money-market funds are still at pretty high yields, but we don't know how long that's going to last," she said.

But with the Fed's recent pivot to rate cuts, keeping a focus on jobs data -the obvious driver of Fed policy - seems like a cool-headed strategy, since it could more easily sway the central bank's willingness to cut rates than other factors.

"The pace of jobs gains has consistently moved lower over the past few years," said Alex Coffey a senior trading strategist at Schwab. "But we almost have a jobs market that's relatively frozen, kind of like the housing market."

Living with volatility

With stocks hovering near all-time highs, Coffey said the reasons for future Fed rate cuts will matter more than ever, since equities tend to rally when a hard landing has been avoided, but punished when they come as part of an attempt to rescue the economy.

Jack McIntyre, portfolio manager at Brandywine Global, thinks a recession looks more distant than only a month ago. "The two largest economies in the world are shifted toward stimulus, that takes global recession out of play," he said.

Still, his team has been preparing for a soft or hard landing for the U.S. economy, namely by focusing on bonds offering yield. If, for example, the 10-year Treasury BX:TMUBMUSD10Y climbed from its recent yield of 3.8% to 4.5%, McIntyre said he'd be "buying with both hands."

Investors in the stock market don't need to bet the farm either, Schwab's Coffey said. Traders with short-term strategies in stocks, for example, can limit their downside risks when markets get choppy by reducing the size of their orders.

Over time, however, staying invested has been more important than trying to time the market, he said. "Have that plan, implement the strategy, stick to rules."

The Dow Jones Industrial Average DJIA ended Wednesday up 12% on the year, while the S&P 500 index SPX and Nasdaq Composite Index COMP were up closer to 20%, according to FactSet.

-Joy Wiltermuth

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10-03-24 1156ET

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