**Will Friday’s NFP Report Break the Nasdaq’s Rally?**
*Adapted and expanded from an article by Fawad Razaqzada, ThinkMarkets.*
The Nasdaq has been on a sustained uptrend over recent weeks, reaching historic highs powered by investor enthusiasm over AI stocks, strong earnings reports from tech giants, and expectations of future policy easing by the Federal Reserve. However, a key risk event looms that could challenge this momentum: the release of the U.S. non-farm payrolls (NFP) report this Friday. With interest rates and inflation still dominating market sentiment, this economic report could either sustain the rally or trigger a significant correction.
This article breaks down how the Nasdaq got to its current levels, what market participants expect from the NFP report, and which scenarios could unfold that would either fuel or stall equity gains, particularly in growth-heavy indices like the Nasdaq.
## Nasdaq Soars to Record Levels
The last few months have seen robust performance from the Nasdaq Composite, which has outpaced the Dow Jones Industrial Average and the S&P 500. This is largely driven by:
– Renewed optimism surrounding tech companies, especially those related to artificial intelligence.
– Decline in Treasury yields, providing a tailwind for growth stocks.
– Better-than-expected corporate earnings in the technology sector.
– Expectations that the Fed may begin easing monetary policy later this year.
The Nasdaq 100, for example, reached a new all-time high recently, supported by semiconductor stocks such as Nvidia, which continues to outperform on its AI-driven business model.
The artificial intelligence narrative has become a dominant market theme, and with many of the largest Nasdaq-listed companies having direct exposure to AI, the index has enjoyed greater relative strength.
## Market Expectations Ahead of NFP
The U.S. non-farm payrolls report is one of the most influential macroeconomic releases, often driving sharp, immediate reactions in Forex, bond, and equity markets. The upcoming report is expected to show continued strength in the U.S. labor market, though some analysts are predicting a possible slowdown in the pace of hiring.
Current consensus forecasts for Friday’s release include:
– Around 190,000 new jobs added in the month of May.
– Unemployment rate holding steady at 3.9 percent.
– Average hourly earnings expected to rise by 0.3 percent month-over-month.
These expectations are softer than earlier in the year, which may reflect tightening credit conditions, reduced business investment, or labor market normalization following strong post-pandemic rehiring.
## Why the NFP Matters For Stocks and the Fed
The relationship between employment data and Federal Reserve interest rate policy is complex but crucial for equity markets.
When employment data comes in stronger than expected:
– It signals economic resilience.
– This reduces the likelihood of rate cuts or pushes them further into the future.
– As a result, bond yields rise, making equities relatively less attractive.
– Growth stocks, especially those with rich valuations such as tech firms, become more vulnerable to a sell-off.
When employment data shows weakness:
– It may indicate slowing economic momentum.
– The Fed could view it as a greenlight to begin policy easing.
– Lower interest rates would offer a valuation boost to risk assets.
– This scenario is typically bullish for equities, particularly the tech-heavy Nasdaq.
Given these dynamics, Friday’s NFP could be a significant short-term catalyst or barrier, depending on how the data stacks up against market expectations.
## Scenarios Following the NFP Report
Depending on the actual data released, several outcomes are possible for the Nasdaq and broader equity markets.
### Bullish Scenario
– Payroll growth comes in at or below 150,000.
– Wage growth is tame, possibly 0.2 percent MoM or slower.
– Unemployment ticks up slightly to 4.0 percent or more.
This would point to a gradually cooling labor market, increasing the probability of a Fed rate cut later in the summer. Under this scenario,
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