Wall Street on edge: 5 jobs data scenarios could make or break stock rally

Stock traders are holding their breath this week as January employment numbers arrive. The data threatens to derail a recovery that’s pushed the Dow Jones to historic heights.

After bouncing back from a brutal technology selloff just days ago, investors face a critical question: will Friday’s jobs data keep things moving or send markets tumbling?

JPMorgan’s trading team mapped out five possibilities for how stocks might react when the Labor Department releases nonfarm payrolls data. The market’s walking a tightrope. Numbers coming in too strong or too weak could both spell trouble.

Here’s what JPMorgan sees:

• If employers added more than 110,000 workers last month, the S&P 500 could drop 0.5% to 1%. JPMorgan thinks there’s only a 5% chance of that. Strong hiring might convince the Federal Reserve to hold off on cutting interest rates. That’d disappoint investors who want easier monetary policy.
• Between 90,000 and 110,000 jobs has a 20% chance and could lift stocks 0.25% to 1%.
• The sweet spot sits between 60,000 and 90,000 new jobs. JPMorgan gives this a 40% probability, the most likely scenario. The S&P 500 might climb between 0.25% and 0.75% there. This “Goldilocks” outcome would show the economy cooling without crashing.
• The 30,000 to 60,000 range carries a 30% chance. Stocks might wobble between a 0.25% decline and a 0.5% gain.
• Fewer than 30,000 jobs would probably hammer stocks down 0.5% to 1.25%, though there’s just a 5% shot of that.

Michael Feroli is JPMorgan’s chief economist for the United States. He expects 75,000 jobs created in January. Better than December’s paltry 50,000. Unemployment probably stayed flat at 4.4%.

“We think the print falls in the Goldilocks zone but one that is too hot will trigger a repricing of the yield curve higher and the elevated bond vol likely produces a down for stocks and one that is too cool will have the market on edge that the Fed is late to resuming its easing cycle and with Powell unlikely to cut before his term as Fed Chair ends, means that first cut would be in June,” JPMorgan’s trading desk wrote as quoted by CNBC.

Recent employment signals have turned worrying

Private sector hiring nearly stalled in the latest ADP report. Job openings plummeted to levels not seen since September 2020. January layoffs hit their worst mark since 2009, per outplacement firm Challenger, Gray & Christmas. Investors are nervous the labor market might be cracking.

There’s a twist though. Lower immigration has slowed labor force growth. The economy now needs only about 30,000 jobs monthly to keep unemployment steady. Way down from the 250,000 monthly pace needed back in 2023. Markets haven’t fully absorbed this. Explains why seemingly weak numbers might not be alarming.

Options traders are betting on a 1.2% swing either way when the data drops. Shows how uncertain Wall Street feels.

The jobs report comes as stocks undergo a massive shift

The Dow crossed 50,000 on February 6. Money’s flooding out of expensive technology stocks into cheaper, overlooked companies. Small-cap stocks in the Russell 2000 index jumped 7.6% this year. Crushes the S&P 500’s roughly 2% gain. Energy stocks surged 14.2% in January. Materials climbed 8.6%. Financials stumbled 2.4%.

If jobs come in just right, this rotation from growth to value could speed up. Companies sensitive to economic cycles tend to do better when the economy shows resilience without overheating. Manufacturers, commodity producers, retailers.

Technology giants are planning to spend between $650 billion and $700 billion on artificial intelligence infrastructure in 2026. Amazon pledged $200 billion. Alphabet’s around $175-185 billion. Meta $115-135 billion. Microsoft roughly $145 billion. Software stocks have crashed 24% this year though. Investors are questioning whether these investments will pay off.

Amazon fell 8-10% after reporting earnings despite the spending spree. Alphabet declined even after beating expectations. Investors want proof AI will generate profits, not just consume capital.

The jobs report could determine where money flows next. Into beaten-down value stocks or back into technology shares if economic data suggests growth is fading.

JPMorgan says it’s “tactically bullish” and expects stocks to continue their broadening rally. Everything hinges on getting that Goldilocks number. Strong enough to show economic health. Weak enough to keep rate cut hopes alive.