Stocks just had their worst month of the year and the start of a new quarter won't bring much reprieve.
The September jobs report highlights the week of economic data after a last-minute deal saved the US from a government shutdown. Key updates on activity in the manufacturing and services sectors of the economy, as well as the latest read on job openings, will highlight the economic calendar.
On the earnings front, results from Constellation Brands (STZ) and Levi's (LEVI) will highlight a light week of quarterly reports.
Stocks enter October after two consecutive down months. In the third quarter, the Nasdaq Composite (^IXIC) fell 4.1%, while the S&P 500 (^GSPC) dropped 3.6% and the Dow Jones Industrial Average (^DJI) fell 2.8%.
In his September press conference, Fed Chair Jerome Powell noted that supply and demand conditions "continue to come into better balance," as signs of softening in the labor market have appeared over the last few months.
Investors and Fed watchers will be looking for more signs of that as the labor market comes into focus in the week ahead.
The September jobs report is expected to show 168,000 nonfarm payroll jobs were added to the US economy last month with unemployment dropping to 3.7%, according to data from Bloomberg. In August, the US economy added 187,000 jobs while the unemployment rate rose unexpectedly.
August's report also brought a significant increase to the labor force participation rate, which reached 62.8%, its highest level since February 2020.
"As high interest rates continue to take a bite out of labor demand, we expect additional labor market cooling," Wells Fargo's team of economists wrote in a note on Friday. "We forecast that the U.S. economy added 150K jobs in September, a step down from 187K in August."
The auto sector will remain in center stage in the coming days as the United Auto Workers (UAW) expanded its strike on Friday. The UAW added more workers to the strike at Ford (F) and GM (GM) but spared Stellantis (STLA) as negotiations improved over the past week.
Auto companies are also expected to report quarterly deliveries during the upcoming week. Tesla (TSLA) is expected to report deliveries of 456,000, down from roughly 466,000 a quarter ago.
"While the situation could still evolve, for suppliers so far, actually the impact of the strike seems much more modest than was initially expected," JPMorgan automotive equity research analyst Ryan Brinkman wrote in a note on Sept. 25.
He added: "While the situation could clearly take a turn for the worse, the incremental headwind at this point seems more of a risk for 4Q."
Higher oil prices and yields on the 10-year Treasury (^TNX) hovering near 16-year highs have weighed on stocks over the past few weeks as the Fed's higher-for-longer stance sent stocks lower to end September.
Strategists now appear split on what exactly higher for longer will mean for stocks for the rest of the year.
JPMorgan's chief market strategist Marko Kolanovic notes that the tighter fiscal policy is just one of several headwinds as growth remains slower than expected in China and the American consumer comes further under pressure.
"Medium term we remain negative and find the risk-reward in equities and credit spreads unattractive relative to a fixed income alternative (cash)," Kolanovic wrote in a note to clients on Wednesday. "This will likely remain the case as long as interest rates remain in deeply restrictive territory and the overhang of geopolitical risks persists."
But Bank of America's equity strategy still sees upside to the S&P 500, specifically the equal-weighted index, which puts less emphasis on large-cap tech stocks that have already seen valuations soar.
"We are not in the camp that the higher-rate environment is all that bad for equities," Bank of America Equity & Quant Strategist Ohsung Kwon told Yahoo Finance.
He added: "What's really spooking the market isn't really the level of rates but it's more about the volatility of rates. Once volatility settles I think equities can still work."
Weekly Calendar
Monday
Earnings: No notable earnings
Economic data: S&P Global US Manufacturing PMI, September, final (48.9 expected, 48.9 previously); Construction spending MoM, August (+0.6% expected, +0.7% previously); ISM manufacturing, September (47.8 expected, 47.6 previously)
Tuesday
Earnings: McCormick (MKC), Cal-Maine Foods (CALM)
Economic data: JOLTS Job Openings, August (8.9 million expected, 8.8 million previously);
Wednesday
Earnings: Tilray (TLRY)
Economic data: MBA Mortgage Applications, week ending Sept. 29 (-1.3% previously); ADP employment change, September (150,000 expected, 177,000 expected); Factory orders, August (+0.2% expected); Durable goods orders, August final (+0.2% previously); ISM Services Index, September (53.5 expected, 54.5 previously) S&P Global US Services PMI, September, final (50.2 expected, 50.2 previously); S&P Global US Composite PMI, September, final (50.1 previously)
Thursday
Earnings: Conagra (CAG), Constellation Brands (STZ), Levi's (LEVI)
Economic data: Challenger jobs cuts, year-over-year, September; Weekly initial jobless claims, September 30 (204,000 previously)
Friday
Earnings: No notable earnings
Economic data: Nonfarm payrolls, September (+170,000 expected, +187,000 previously); Unemployment rate, September (3.7% expected, 3.8% previously); Average hourly earnings, month-over-month, September (+0.3% expected, +0.2% previously); Average hourly earnings, year-over-year, September (+4.3% expected, +4.3% previously); Average weekly hours worked, September (34.4 expected, 34.4 previously); Labor force participation rate, September (62.8% previously)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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