Tonight, a strong nonfarm payrolls report could deliver another heavy blow to US stocks.

By Xu Chao, Wallstreetcn

The U.S. October nonfarm payroll report will be released on Friday (Nov. 6) at 8:30 a.m. ET. Markets broadly expect the data to rebound from September's low, but the timing of this report is highly precarious—one day before its release, tech stocks suffered severe losses, with the Nasdaq 100 Index plummeting 6.36% in a single day, marking its worst performance since March 2020, as AI-driven trading faces a complete unraveling.

The drastic market turmoil on Thursday has profoundly altered the interpretive framework for the employment report. The S&P 500 Index fell 4.36% in a single day, the Philadelphia Semiconductor Index plunged 12%, and the VIX Volatility Index spiked 11.5 points to 28, indicating a sharp contraction in market liquidity. Against this backdrop, an above-consensus jobs report would not boost market sentiment; instead, it could reignite expectations for a December Fed rate hike at the worst possible time, further inflaming an already fragile market.

Data Points to a Rebound, but Divergence Remains

Markets widely expect October nonfarm payrolls to rebound significantly from September's 29,000. According to a Bloomberg survey, Wall Street's forecast ranges from 35,000 to 131,000, with the consensus around 65,000. The unemployment rate is expected to hold steady at 4.2%, while average hourly earnings are projected to rise 0.3% month-over-month and 2.9% year-over-year, marking the first time since May 2021 that it falls below 3%.

Goldman Sachs forecasts an increase of 75,000 nonfarm payroll jobs, above the consensus, and estimates private-sector employment growth at 70,000. Goldman's projections are based on several factors: initial jobless claims fell to 195,000 during the reference week for the October survey, down from 204,000 in September; JOLTS data showed a surprise surge in September job openings by 333,000 to 7.523 million, hitting a cyclical high; ADP private employment rose by 86,000, exceeding expectations; and Challenger layoff data revealed 43,994 job cuts announced in October, a 71% year-over-year drop and the lowest level since 2023. Seasonally, Goldman also notes that when Labor Day falls later in September, employment data typically rebounds in the following October, historically accelerating by an average of around 50,000.

However, some signals point to downside risks. Tracking data from data provider Revelio shows that October new employment was only 26,000, below the revised figure of 67,600 for the previous month, representing a clear outlier on the low end among institutional forecasts.

Unemployment Rate and Wages: Details Trump Headlines

The unemployment rate reading may emerge on Friday as a more market-sensitive variable than the headline nonfarm payroll total.

September's unrounded unemployment rate stood at 4.18%, meaning even minimal fluctuations could push it to either 4.1% or 4.3%. Goldman Sachs, Turnleaf, and the Federal Reserve Bank of Chicago all lean toward a downside risk for the unemployment rate, suggesting it may converge to a lower level implied by continuing claims for unemployment insurance. Goldman also noted that its composite "Slackness Tracker," which aggregates ten labor market slack indicators, currently reads at 4.6%, "suggesting the labor market is actually weaker than what the single unemployment rate alone indicates."

In terms of wages, if the consensus expectation materializes, annual salary growth will fall below 3% for the first time in over four years.

Goldman's broad wage tracker, combining multiple wage indicators, shows third-quarter annualized month-over-month growth at 3.0% and year-over-year growth at 3.3%. Deutsche Bank's proxy indicator for nominal wage growth is expected to dip slightly to 4.1%, a level the bank believes "still supports robust consumer spending growth." Notably, third-quarter productivity jumped 3.6% year-over-year, far exceeding the 2.7% estimate, while unit labor costs unexpectedly declined by 0.7%.

Fed Path: Rate Hike Expectations Eroded by AI Crash

At its October policy meeting, the Federal Reserve held rates steady, though two officials cast dissenting votes.

Fed Chair Warsh signaled that interest rates would rise at a "measured pace." During Thursday's Nasdaq plunge, Cleveland Fed President Hammack maintained that monetary policy "needs to move to a restrictive stance," favoring "more frequent but smaller adjustments"; Richmond Fed President Barkin indicated expectations for further rate hikes, though he remains uncertain about the "magnitude and pace."

Goldman Sachs economists anticipate the Fed will implement a second and final rate hike in December, raising the federal funds rate target range to 4.00%-4.25%, followed by a pause and a resumption of rate cuts from late 2027 to early 2028. Entering this week, the market's implied pricing for a December rate hike was approximately 21 basis points (implying roughly 83% probability).

Following Thursday's steep selloff in the AI sector, the implied pricing for a December rate hike has fallen to 17.25 basis points (~70% probability). The yield on the 2-year U.S. Treasury note declined by approximately 12 basis points amid a bull steepener trade. Goldman Sachs' fixed income sales team identifies two key downside risks for front-end and belly rates: first, Trump restarting strikes on Iran post-midterms, reigniting inflation expectations; second, the collapse of AI trading causing a substantive growth shock. According to Axios reporting on Thursday evening, Trump stated that the decision on war with Iran is "imminent."

A Strong Report Could Be Exactly What the Market Needs Least

All told, ahead of this nonfarm payroll release, the underlying labor market fundamentals present a robust configuration rarely seen in recent years: initial jobless claims are near a 57-year low, October layoffs hit the lowest level since 2023, JOLTS job openings surged by 333,000, and ADP data beat expectations. Given this backdrop, the risk of employment figures surpassing the 65,000 consensus actually leans upward, and the unemployment rate could also decline.

The crux of the issue lies precisely here. A strong report would provide ample justification for Warsh, Hammack, and Barkin to support a December rate hike—just as the Nasdaq has just endured its most brutal trading session since March 2020.

Goldman's rates sales team believes that a single data print cannot fully wash away market pricing for a rate hike; more likely, a decent employment number would bring a December hike back onto the table, layering another rate issue on top of existing AI concerns. Given the current positioning landscape—CTA strategies have begun net-selling futures, and long-biased institutions are "once again gridlocked"—this does not spell a bottom-reversal setup. Goldman's models show that if the market drops another 2.5 standard deviations from current levels, potential liquidation in S&P 500 futures over the next week could reach $7.48 billion.

Worth monitoring is the revision magnitude of the September nonfarm report for August (downwardly revised from the initial print to 133,000, and ultimately settling at 29,000)—a development markets should watch closely as well. The impact of the last revision on the bond market and rate pricing was no less significant than the headline data itself.