Wall Street Eyes Cautious Open as Labor Data Looms Before Friday Jobs Report

Wall Street was bracing for a subdued Thursday morning as traders absorbed the implications of a strong Wednesday—the market's best day in a week—while keeping one eye on the labor market, which showed its first real signs of strain in months.

The rally had been fueled by a wave of solid corporate earnings. PayPal and CVS Health led the charge, and their results seemed to quiet some of the anxieties that had haunted investors through the summer: the war in Ukraine, inflation that wouldn't quit, lockdowns in China, and the Federal Reserve's relentless campaign to raise interest rates. The S&P 500 had climbed nearly 14.2 percent from its lows in mid-June, a recovery that felt substantial until you remembered the year-to-date damage—the index was still down 12.8 percent. Sam Stovall, the chief investment strategist at CFRA, offered a threshold that mattered: if the S&P closed above 4200, it would signal the beginning of an actual bull market, not just a bounce within a bear market.

But the mood on Thursday morning was cautious. The data arriving Wednesday had introduced a wrinkle. Weekly jobless claims had ticked up, a small but meaningful signal that the labor market—which had been running hot all year—was beginning to cool. It wasn't a collapse. Overall conditions remained tight. But it was softening, and that mattered because the Federal Reserve was actively trying to slow hiring to bring inflation under control. The real test would come Friday with the July employment report, which economists expected to show nonfarm payrolls had grown by 250,000 jobs, down from the 372,000 added in June. That deceleration would be watched closely.

Stovall articulated what was really on investors' minds: the economy might be heading for a soft landing, the kind of gentle slowdown that doesn't tip into recession. But there was a scenario that could upend everything. "If we end up with a lot of companies that are actually just getting rid of employees, that could be a problem," he said. Substantial cuts in hiring or outright layoffs would force investors to slash their growth expectations, and that would shake the market far more than a muted Thursday open.

In premarket trading, the moves were modest. The Dow e-minis were up 18 points, the S&P 500 e-minis up 6 points, the Nasdaq 100 e-minis up 31 points—all fractional gains. But individual stocks told more interesting stories. Alibaba jumped 6.3 percent after beating expectations despite flat growth caused by Shanghai's lockdown. ConocoPhillips rose 2.5 percent on news it would return $15 billion to shareholders after profits more than doubled on soaring energy prices. Albemarle, the world's largest lithium producer, and Cigna, a major health insurer, both gained more than 3.9 percent after raising their annual profit forecasts. Eli Lilly, by contrast, slipped 2.2 percent after cutting its profit outlook for the second time, undone by lower insulin prices and competition in its cancer drug portfolio.

The market was doing what markets do in uncertain moments: parsing the details, looking for signals, waiting for the next piece of information that might clarify the path ahead. Friday's employment report would be that information. Until then, Wall Street would move in half measures, neither committing to optimism nor surrendering to doubt.