The "small non-farm payroll" unexpectedly provided a temporary rescue for the U.S. stock market, but the major non-farm payroll data on Friday should not be taken lightly

Source: BIT Securities

Waking up, the market has reversed again.

Previously, concerns about the "Federal Reserve's rising interest rate expectations for September" had been weighing down U.S. stocks. However, last night, with the release of the ADP employment data, U.S. stocks finally stopped falling and rebounded: the Dow rose 0.56%, and both the S&P and Nasdaq closed up 0.46%, ending three consecutive days of decline.

1. A "bad" employment data becomes a lifeline for U.S. stocks

What allowed U.S. stocks to catch a breath was the pre-market release of the ADP employment data (commonly known as "small non-farm"): the U.S. added only 38,000 jobs in August, below the expected 48,000, marking the worst performance since January this year.

Once the data was released, the chain reaction was immediate: U.S. Treasury yields plummeted, U.S. stocks turned positive, and gold surged.

The logic is still the same old script—employment data is a core indicator that influences the Federal Reserve's interest rate decisions, aside from inflation. Strong employment indicates an overheating economy, necessitating interest rate hikes to cool it down; weak employment suggests a cooling economy, which provides room for monetary policy easing. Therefore, the not-so-good ADP bad news turned into good news.

2. Don't celebrate too early: Friday's non-farm payrolls are the real test

However, the relief brought by the small non-farm payrolls is only temporary. This Friday, the official non-farm employment report will follow.

A cold splash of water is needed: ADP has always been considered a forward-looking reference for non-farm payrolls, but there is no stable linear correspondence between the two—just because the small non-farm payrolls were disappointing does not mean the large non-farm payrolls will be bad. The market currently generally expects that August's non-farm employment will slightly recover, with about 55,000 new jobs, significantly higher than July's -23,000.

According to the CME FedWatch tool, after the small non-farm payrolls were released, the probability of a Federal Reserve rate hike in September only slightly decreased to 62.3%—the risk of a rate hike is far from eliminated. This is precisely why Friday's large non-farm payrolls are crucial.

3. How does the Federal Reserve view employment? Waller's attitude is subtle

Even if the small non-farm payrolls are weak for a single month, Federal Reserve officials still maintain an optimistic overall assessment of the labor market.

Waller's speech at the Jackson Hole annual meeting last week revealed this subtle position: he acknowledged that there are some localized concerns in the labor market but emphasized that the overall condition is consistent with full employment. His exact words were: "When labor supply growth is nearly stagnant, monthly job additions will naturally be low. But overall, most people who want to work can still hold or find jobs."

This statement is not without basis. Current tightening immigration policies, declining birth rates, and an aging population are three factors that collectively suppress the growth of the U.S. labor force—fewer new jobs do not necessarily mean weak "demand" for hiring, but could also indicate tight "supply" of available workers. Government data also shows that the unemployment rate remains at historical lows, supporting the core judgment of Federal Reserve officials: the labor market is basically balanced, and policy focus can continue to be on curbing inflation.

In other words, a weak ADP is still not enough to make the Federal Reserve change its stance.

4. In conclusion

The current situation can be summarized in one sentence: the rebound is real, and the risks are also real.

The small non-farm payrolls have pushed the probability of a September rate hike down a bit from a high level, but the 62.3% figure means that the market pricing still believes there is a greater than half chance that a rate hike will come. If Friday's large non-farm payrolls significantly exceed the expected 55,000, the recently repaired sentiment could easily reverse again.

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