After a bruising tariff-driven selloff in early April, U.S. equities have staged an astonishing comeback.
In just 20 trading sessions, the S&P 500 index – as tracked by the SPDR S&P 500 ETF Trust SPY – has recouped its post-tariff announcement losses and entered May on its longest winning streak since November 2023.
Yet, the rally faces a crucial test this Friday at 8:30 a.m. ET, when the Bureau of Labor Statistics releases April’s nonfarm payrolls report — the first comprehensive snapshot of the U.S. labor market since President Donald Trump unveiled sweeping new tariffs on April 2.
It’s a make-or-break moment that could either confirm the recent bullish narrative or abruptly reverse sentiment.
Recent Signals Point To A Cooling Labor Market
Early signals paint a sobering picture of the labor market. The GDP release for the first quarter of 2025 showed a 0.3% contraction, a major downside surprise that rekindled recession fears.
Private payroll processor ADP revealed earlier this week that U.S. private employers added just 62,000 jobs in April — far below consensus expectations of 108,000 and the weakest reading in nine months.
The ISM Manufacturing PMI survey also showed employment continuing to contract, while Thursday’s jobless claims jumped to 241,000, the highest weekly total since February and well above forecasts of 224,000.
More worryingly, Challenger, Gray & Christmas Inc. reported that U.S. employers had announced over 602,000 job cuts year to date — the most since 2020, when the pandemic triggered more than one million layoffs.
What Wall Street Expects
According to economist consensus tracked by TradingEconomics, nonfarm payrolls are projected to rise by 130,000 in April, down sharply from March’s 228,000 print.
Over the past six months, the U.S. economy has been averaging 170,000 new jobs per month, so this would mark a noticeable slowdown.
The unemployment rate is expected to remain steady at 4.2%, while average hourly earnings are forecast to rise 0.3% month-over-month, with annual wage growth increasing slightly to 3.9% from 3.8%.
Betting markets are closely tracking these expectations. According to CFTC-regulated prediction platform Kalshi, there’s a 72% chance that payrolls will exceed 100,000, but only a 36% chance they’ll surpass 150,000. The market-implied estimate currently stands at 133,000 — almost perfectly in line with economists’ forecasts.
Comerica expects a soft report, forecasting just 115,000 jobs added and an uptick in the unemployment rate to 4.3%, suggesting job growth is not keeping pace with the number of new entrants into the labor force.
Bank of America is slightly more optimistic, projecting 165,000 new jobs. Yet, the bank’s economist Shruti Mishra also expects minimal government job creation due to the ongoing federal hiring freeze and the Department of Government Efficiency (DOGE) restrictions.
Immigration constraints, they note, could further weigh on labor supply in the coming months, although these effects are not expected to significantly impact April’s figures.
Why This Report Matters For Markets
If Friday’s jobs numbers beat expectations, it would signal that Americans are still working, still spending, and that the economy is sturdier than feared, at least for now.
Stronger-than-expected payroll growth would be a clear positive for markets. It would suggest that despite the drag from tariffs and broader policy uncertainty, employers are still hiring and businesses still see enough demand to expand their workforce.
That, in turn, would be a good omen for consumer spending, the backbone of the U.S. economy, and by extension, corporate earnings. For a stock market that’s betting on steady consumer resilience, such a scenario would reinforce the bullish momentum.
In contrast, a weaker-than-expected jobs number could deal a blow to investor confidence.
A significant miss would lend weight to the idea that the economy is indeed cooling and that the labor market is starting to feel the pressure from tariffs, weaker global demand and tighter corporate budgets. Fewer new jobs mean less income, reduced spending and a potential drag on the earnings outlook for corporate America.
If April’s numbers fall short, particularly if the unemployment rate ticks higher, markets may interpret that as confirmation that the economy is sliding toward a stagflation.
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