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Why the tanking stock market badly needs a blowout September jobs report

Brian Sozzi
Editor-at-Large

It’s back to bad economic news for the stock market.

Hence, a market dealing with renewed worries over a U.S. recession happening soon thanks to the U.S.-China trade war — though still largely upbeat on equities — sorely needs a strong September jobs report on Friday. Anything less than the consensus estimate of around 140,000 will likely be yet another sign to dump stocks as it would feed the recession narrative re-surfacing on Wall Street.

Hell, there is an argument to be had that anything sub-200,000 on the headline deserves to be met with a smashing down on the sell button on stocks. Haven’t President Trump and his top economic advisors been touting the U.S. economy as being in its best shape ever? Then the jobs market should pony up a good old fashioned blowout September report, no?

“Bottom line, worries about the economy spiked this week, and the last thing this market needs is a soft jobs number to reinforce the idea that any trade truce next week between the U.S. and Chins is ‘too late’ to help manufacturing sentiment. So, it’s not often the case, but the stronger this jobs report, the better, as a strong report will help calm any growing nerves about current economic growth,” says Sevens Report Research founder Tom Essaye.

Essaye thinks a headline jobs increase of 125,000 or under on Friday would be too soft. A rotation into gold and further buying of the safe-haven 10-year Treasury would probably ensue, Essaye believes.

“A number this soft would only further the idea that the economy is slowing, the Fed is behind the curve and it may be too late for a trade truce to save economic growth. A soft number also would further the idea that any future Fed rate cuts would just be ‘appropriately’ dovish given slowing growth, not ‘aggressively’ dovish,” Essaye says.

There are some murmurs on the the Street of a September jobs increase figure in the 10,000 to 50,000 range. If that happens, investors best look out below.

“We could see a sell-off, a gap down on that type of number [50,000 increase],” SunTrust chief markets strategist Keith Lerner tells Yahoo Finance. Anything less than 50,000, Lerner says, it would really fuel the notion that the U.S. has one foot in the recession grave.

To be sure, investors should be mentally prepared for a soft September jobs report.

Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) at the closing bell on October 2, 2019 in New York City. The Dow Jones Industrial Average has dropped over 800 points in the first two days of trading in October. The drop comes after reports showed slowing in September for both manufacturing and hiring. (Photo by Drew Angerer/Getty Images)

Latest gloomy data

The stock market has been whipped this week on several dour reads on the state of U.S. manufacturing. On Thursday, the closely watched September ISM non-manufacturing index clocked in at 52.6 versus expectations for 55.3. It marked the worst reading since August 2016. The new orders component cratered 6.6 points from August to 53.7. Meanwhile, the report’s employment index dropped to 50.4, the lowest level since February 2014.

This comes on the heels of Tuesday’s ISM Manufacturing Index for September hitting 47.8, the worst going back to June 2009.

The read from all of this data: The U.S. manufacturing recession is getting worse as Trump’s tariffs take hold and is now bleeding over into the services sector. Not good.

All of this ugliness will probably be reflected in the September jobs report, much to the dismay of the bulls.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

Programming note: Yahoo Finance’s The First Trade will be live at 8:30 a.m. ET on Friday with all the analysis you need immediately following the release of the September jobs report. Watch here, our app or on Verizon channel 501.

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