This week, the focus is on the July labor market report, which will have an impact on future Federal Reserve rate decisions. On Tuesday, there was a slight decrease in job vacancies for June, and Wednesday’s ADP employment change will provide a more significant preview of the upcoming jobs report on Friday. According to ADP, investors estimate 190,000 monthly job creations in the private sector, while the Bureau of Labor Statistics forecasts around 200,000 new non-farm payrolls. If the economists’ predictions align with the data, it would result in the lowest ADP employment growth since March 2023 and the lowest non-farm payroll reading since December 2020. The unemployment rate is expected to remain unchanged at 3.6%, and wage growth is predicted to ease by 0.2 percentage points to 4.2% year-on-year.
The outcome of the labor market data will shape expectations for Federal Reserve rate hikes. Stronger job growth and rising wages may lead investors to anticipate potential rate increases in September, while lower-than-expected data could reinforce the expectation for a pause in rate increases. Currently, there is an 82% probability of unchanged rates in September, according to Fed futures prices.
There are five ETFs that could experience increased volatility depending on the labor market data surprises. The iShares 20+ Year Treasury Bond ETF could be impacted by negative effects if the job report surpasses expectations, resulting in decreased bond prices. Conversely, if the job report falls short of expectations, bond prices may increase. The Invesco DB USD Bullish Fund ETF is influenced by the value of the U.S. dollar, which is closely tied to Fed interest rates. A growing economy and a healthy job market could support the dollar. The Invesco QQQ Trust, which includes tech stocks, is sensitive to changes in the labor market and inflation. Tech stocks benefit from a balanced labor market with employment and wage growth. The iShares Russell 2000 ETF is affected by the job market, as stronger conditions benefit small-cap stocks, while weakening conditions negatively impact them. The SPDR Gold Trust’s value is influenced by Fed interest rate rises, with a stronger job market tempering positive price movements in gold.
In summary, the July labor market data will have implications for Federal Reserve rate decisions, and various ETFs could experience increased volatility depending on the surprises in the data.