U.S. Markets Brace for Key Jobs Report as Tech Stocks Slide and Economic Growth Concerns Loom

Global markets dipped slightly on Monday as investors geared up for a week of significant economic data, including a U.S. jobs report that could influence the size of an anticipated Federal Reserve rate cut. Over the weekend, data showed Chinese manufacturing fell to a six-month low in August, while Monday's data highlighted weak manufacturing activity in the eurozone.

Despite these concerns, Wall Street stocks rose on Friday, with the Dow hitting its second consecutive all-time high on hopes for imminent rate cuts by the Fed.

The broader market recovery since early August has been seen as a positive sign for investors, who have been concerned about the dominance of tech stocks. Money is also flowing into value stocks and small caps, which may benefit from lower interest rates. However, analysts at Bank of America caution that September and October are historically volatile months, and unexpected economic data could trigger market shocks.

Tech giants saw declines in August due to worries over AI costs and recession risks, making them vulnerable to market corrections. Alphabet’s market value dropped 4.7% amid slowing YouTube ad sales, an antitrust ruling, and competition from OpenAI. Amazon's market value fell 4.5% due to slowing online sales, and Tesla's dropped 7.7% after weaker Q2 earnings and concerns over Canadian tariffs on Chinese-made EVs. Nvidia also saw its market value decrease by 7.7% to $2.92 trillion in late August after projecting lower-than-expected Q3 gross margins.

Conversely, Eli Lilly’s market value surged nearly 20%, driven by strong sales and the launch of a weight-loss drug that reduces the risk of type 2 diabetes. Berkshire Hathaway’s market value exceeded $1 trillion for the first time, reflecting strong investor confidence, while Meta’s market value rose nearly 10% on better-than-expected Q2 revenues and optimistic forecasts for the upcoming quarter, buoyed by strong digital ad spending.

Investors are closely watching this week’s U.S. labor market data, which will be crucial for market direction. The previous month's labor report, which missed expectations, triggered a sell-off in risk assets, starting with disappointing ISM Manufacturing PMI data. While the Bureau of Labor Statistics stated that Hurricane Beryl did not affect employment data, the household survey showed that 436,000 individuals were unable to work due to adverse weather, a record for July. Additionally, 249,000 people were on temporary layoff, contributing to the rise in unemployment. Market participants are eager to see if these factors were indeed temporary.

Morgan Stanley economists forecast that the current market is vulnerable to a downturn, especially if growth concerns persist, as reflected by the continued underperformance of cyclical stocks relative to defensive stocks. Morgan Stanley highlights that, while the bond market has already priced in some Fed rate cuts, cyclical sectors like housing, auto purchases, and credit card spending have not yet responded, suggesting lingering caution among investors.

Unlike past corrections driven by inflation fears, the current market dynamics are centered on growth concerns. Given these conditions, Morgan Stanley advises favoring high-quality defensive stocks and remaining cautious about investing in small-cap or cyclical stocks that typically underperform in a late-cycle, soft-landing scenario.

Data for Technical Analysis (1H) CFD US30 DJIA

Resistance : 41518.9, 41525.7, 41536.8

Support : 41496.7, 41489.9, 41478.8                                

1H Outlook

Source: TradingView           

Buy/Long 1 If the support at the price range 41481.7 - 41496.7 is touched, but the support at 41496.7 cannot be broken, the TP may be set around 41526.1 and the SL around 41474.2, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 41518.9 - 41533.9, TP may be set around 41576.8 and SL around 41489.2, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 41518.9 - 41533.9 is touched, but the resistance at 41518.9 cannot be broken, the TP may be set around 41497.1 and the SL around 41541.4, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 41481.7 - 41496.7, TP may be set around 41440.0 and SL around 41526.4, or up to the risk appetite.       

Pivot Points Sep 3, 2024 02:48AM GMT

Sources: Investing 1, Investing 2