181121 New York Stock Exchange 3
Traders at the New York Stock Exchange. US jobs data due on Friday have potential to push Fed toward third jumbo hike. Image Credit: AFP

New York: A surprising late-day reversal took US stocks higher as investors await Friday’s jobs report to gauge how hawkish the Federal Reserve will be. Recent data pointed to a resilient US economy, buoying sentiment later in the day.

The S&P 500 ended its losing streak on Thursday (Sept. 1, 2022), after falling for most of the session. The Nasdaq 100 finished the day flat. Treasuries slumped amid a selloff that left the two-year yield at the highest in almost 15 years. The dollar surged to a record high on speculation that latest data will force the central bank to raise rates by three-quarters of a percentage point at its meeting later this month.

Several Fed officials in recent days reiterated their promise to remain aggressive to control inflation, quashing any hopes of a dovish pivot investors had come to expect after July’s inflation reading. A fresh batch of labour-market and manufacturing data this week also pointed to a resilient US economy, strengthening the central bank’s resolve. But some investors positioned themselves to take advantage of recent market dislocations, bolstered by the positive data.

“We’re taking a more opportunistic tone when it comes to markets,” Ashish Shah at Goldman Sachs Asset Management said on Bloomberg TV. “There’s going to be a lot of back and forth through the data and you want to set yourself up to be investing because sitting in cash is really expensive right now.”

Still, stocks are entering a month that is often poor for returns, following losses in August. The S&P 500 has averaged declines of 0.6% and 0.7% for August and September, respectively, over the past 25 years.

“Right now you have to be patient,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “I wouldn’t try and get in the middle of this kind of reset and re-pricing we’ve seen. The markets can move pretty violently.”

On Wednesday, the three main indexes suffered their biggest monthly percentage declines in August since 2015. After hitting a four-month high in mid-August, the S&P 500 has stumbled in recent weeks, dropping more than 8 per cent through Wednesday’s close and falling through several closely watched technical support levels.

Selling pressure accelerated after Fed Chair Jerome Powell’s hawkish remarks on Friday about keeping monetary policy tight “for some time” dashed hopes of more modest interest rate hikes, with the benchmark index down more than 5 per cent over the past four trading sessions.

The jobs data from the Labour Department is due on Friday and is expected to show nonfarm payrolls rose by 300,000 last month after recording a 528,000 increase in July. Another strong report is likely to further cement expectations the Fed will continue with outsized rate hikes after three straight increases of 75 basis points.