Waking up, the market has reversed again.

Previously, concerns about the "Federal Reserve's increasing rate hike expectations for September" had been weighing down the US stock market. But last night, with the release of the ADP employment data, the US stock market finally stopped its decline and rebounded: the Dow Jones rose by 0.56%, and both the S&P and Nasdaq closed up by 0.46%, ending three consecutive days of decline.

1. A "disappointing" employment data became the lifeline for the US stock market

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

As soon as the data was released, the chain reaction was immediate: US Treasury yields plummeted, US stocks turned positive, and gold surged.

The logic follows the old script—employment data, apart from inflation, is the core indicator influencing the Federal Reserve's decision on rate hikes or cuts. Strong employment indicates an overheated economy, necessitating a rate hike to cool it down; weak employment indicates a cooling economy, which gives room for loosening monetary policy. Therefore, this not-so-good ADP bad news turned into good news.

2. Don't celebrate too early: Friday's non-farm payroll is the true judgment

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

A bit of cold water needs to be thrown here: the ADP has historically been regarded as a forward reference for non-farm, but there is no stable linear correlation between the two—if the small non-farm data disappoints, it doesn't necessarily mean the large non-farm data will also look bad. The market currently broadly expects that non-farm employment in August will see a slight recovery, with about 55,000 new jobs added, significantly higher than July's -23,000.

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According to the CME FedWatch tool, after the release of the small non-farm data, the probability of a Fed rate hike in September only slightly decreased to 62.3%—the risk of a rate hike is far from eliminated. This precisely underscores the importance of Friday's large non-farm data.

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

Even if the small non-farm data is weak for that month, Federal Reserve officials still maintain an optimistic overall assessment of the labor market.

Waller's speech at the Jackson Hole Conference last week revealed this nuanced stance: he acknowledged that there are some localized concerns in the labor market but emphasized that the overall condition aligns with full employment. His exact words were: "When the growth of labor supply nearly stagnates, new monthly jobs will naturally be low. But overall, most people who want to work can still hold or find jobs."

This is not baseless. Current factors like tightened immigration policies, declining birth rates, and an aging population are collectively suppressing the growth of the US labor force—fewer new jobs don't necessarily indicate "weak demand" but can also mean "tight supply" due to a lack 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, allowing the policy focus to continue on curbing inflation.

In other words, a weak ADP alone is not enough for the Fed to 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 data has slightly pushed down the probability of a September rate hike, but the figure of 62.3% means that the market still prices in a significant chance of a rate hike. If Friday's large non-farm data significantly exceeds the expected 55,000, the recently restored sentiment may flip again at any moment.

This "rebound window combined with data judgment" aligns perfectly with the BIT brokerage platform’s use of option tools valuing the positive data on Friday, while the underlying stock continues to gain; if the data disappoints, options payouts will cushion the decline. After all, insurance is always cheapest when the sun is shining.

Disclaimer:

This article is written by external authors, and the views expressed do not represent the position of BIT. This article does not constitute any investment, trading, financial, legal, or other professional advice, nor does it constitute an offer, solicitation, or recommendation of any asset, security, or financial product. The market opinions, data, and analyses mentioned in this article are based on information available at the time of publication; relevant data and market expectations may change at any time and do not represent future performance. Options investing involves risks, especially since derivatives like options may have high risks, and investors may lose all invested capital and even incur additional losses. Any investment decision should be based on individual circumstances, risk tolerance, and independent judgment, and professional advice should be sought when necessary. BIT does not guarantee any investment results or returns.

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