Dow Jones, Nasdaq, and S&P 500 Weekly Preview: Employment Data Coming Soon, Market Risks Rising

Investing.com - U.S. stocks fell on Friday after producer price index (PPI) data far exceeded expectations, with stubborn inflation adding to the list of factors driving market volatility this month.

The Dow Jones Industrial Average dropped 521.28 points, or 1.05%, to close at 48,977.92. The S&P 500 declined 0.43%, ending at 6,878.88, while the Nasdaq Composite fell 0.92%, closing at 22,668.21. Both the S&P 500 and Nasdaq ended February in negative territory, as investor concerns about how artificial intelligence might impact specific industries and the broader economy intensified.

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These concerns may continue to keep U.S. stocks tense in the coming weeks, as investors seek clearer signals on how this technology’s impact will unfold.

Meanwhile, conflict in the Middle East escalated after Iran’s Supreme Leader Ayatollah Ali Khamenei was killed in attacks involving the U.S. and Israel on Saturday. In response, Iran launched missiles and drones targeting Israel, Bahrain, Kuwait, Qatar, the United Arab Emirates, Jordan, Saudi Arabia, Cyprus, and ships passing through the Strait of Hormuz.

The increased geopolitical tensions in the region pushed oil prices higher, along with energy and defense stocks.

This week, focus shifts to Friday’s U.S. employment report, with Wall Street economists expecting non-farm payrolls to increase by 60,000. January’s employment data previously showed stronger-than-expected growth, adding 130,000 jobs, with the unemployment rate falling to 4.3%, easing concerns about a weakening labor market.

Markets will also look for clues on the Federal Reserve’s rate path from the data. Federal funds futures currently point to the next rate cut happening in June or July, with Chair Jerome Powell’s term ending in May and nominee Kevin Woor likely to succeed him.

“U.S. economic activity remains strong, and the impact of the tax law has been a net positive over the past 26 years. The Fed may remain dovish,” said a team led by JPMorgan strategist Mislav Matejka in a report.

“U.S. inflation has held up well against trade headwinds and benefited from declines in wages and services inflation. The issues lie in the labor market, relatively high investor holdings, and valuations, with the potential for artificial intelligence trading to become commoditized.”

Other data this week include the latest manufacturing and services activity reports, as well as the January retail sales report due on March 6.

Broadcom to Announce Earnings

As the Q4 earnings season winds down, a new round of reports is expected this week, with Broadcom’s results on Wednesday drawing the most attention. In addition to this chipmaker, investors will also hear from retailers Best Buy and companies like MongoDB, CrowdStrike, and Costco.

Wall Street is looking for new evidence of how artificial intelligence is shaping the economy—whether for better or worse.

Analyst Views on U.S. Stocks

JPMorgan: “The dramatic events over the weekend will naturally lead to short-term risk aversion, but if the timeframe extends beyond the next few days/weeks, over 3/6/12 months, we believe it’s a good opportunity to add on weakness. Military conflicts are, of course, unpredictable, but we doubt that, considering the political schedule, escalation will last long. We believe the fundamental backdrop remains constructive.”

Evercore ISI: “While the situation in Iran continues to evolve, we think the S&P 500 could hold support at 6,520 points during a pullback, which presents an opportunity to increase exposure to undervalued stocks after the ‘AI panic’ sell-off and geopolitical-driven weakness.”

Royal Bank of Canada Capital Markets: “Valuations in two sectors that have been at the center of recent market anxiety are worth noting. Software stocks (the cornerstone of AI panic trading) have already fallen significantly in our P/E analysis. Although valuations in the capital markets sector have improved markedly, overall, both absolute and relative P/E ratios remain near long-term averages. These charts don’t need to hit any magical number, but overall, we believe the valuations of some key market indicators/problem stocks are, at least in themselves, not particularly attractive. If a deeper growth panic-driven correction is beginning (which is not our base case), these will be key watch points.”

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