Friday's Nonfarm Payroll Could Put Market at Risk — What Wall Street Warns About a Potential Shake-Up

While the feud between Donald Trump and Elon Musk continues to make headlines, traders should stay focused on the real market-moving event on Friday: the May Nonfarm Payrolls report.

The consensus forecast compiled from Wall Street economists calls for a significant slowdown in hiring. Expectations center on a gain of 125,000 jobs in May, down sharply from April’s 177,000. The unemployment rate is expected to hold steady at 4.2%, while average hourly earnings are projected to rise 3.7% year-over-year — a slight moderation from the previous 3.8%.

Investment banks are sharply divided, with forecasts ranging from +75,000 to +190,000. This wide spread reflects growing uncertainty, especially after weak pre-NFP indicators earlier this week.

For months, macro data has shown remarkable resilience. Despite growing policy uncertainty and rising trade tensions, layoffs have remained low and business activity steady. However, analysts warn that the tide may be turning after several disappointing job market data points.

Wednesday’s ADP private payrolls report was a major disaster, showing just +37,000 new jobs — far below the +110,000 expected. That 5-sigma miss — a rare statistical anomaly — was the weakest print since March 2023. Meanwhile, Thursday’s initial jobless claims rose to 247,000, the highest level of 2025 so far, suggesting cracks in the labor market may be starting to appear.

The employment sub-index in ISM manufacturing improved slightly but remained below the 50 contraction threshold, while the services sector showed stronger hiring momentum, indicating a fragmented labor picture.

Following the weak mid-week data, rate-cut bets have surged. Markets are now fully pricing in two Fed rate cuts in 2025, reversing earlier skepticism.

In a note to clients, JPMorgan outlined five potential outcomes and their expected market reactions:

• Payrolls > 170K (5% chance): Viewed as demand-driven strength or seasonal distortions. Could send the S&P 500 up 0.5%–2.5%, but may also push yields higher as it could neutralize rate-cut expectations.
• 140K–170K (25% chance): The “Goldilocks” zone. Suggests healthy but not overheated labor demand. S&P 500 could rise 1.5%–2%.
• 115K–135K (40% chance): The consensus range. Markets could continue their upward trajectory, but a rise in the jobless rate to 4.3% might trim gains to just 0.25%–1%.
• 100K–115K (25% chance): A warning zone. Especially if coupled with rising unemployment and falling wages, this could shift sentiment. Markets might fall 1.25% or rise modestly.
• <100K (5% chance): A tail-risk scenario. Seen as a recession warning and potential end to the current bull market. The S&P 500 could drop 2%–3%.

The bank concludes that current market risks still lean to the upside, as they believe the macro environment reflects a "good news is good news" regime. Positioning shows investors are net short, expecting the trade war will eventually drag the economy down. Some believe the U.S. is heading toward a recession or even stagflation, with the Fed likely to stay on hold. In addition, if deficit-expanding tax or budget legislation passes, it could deplete the fiscal reserves needed to respond to a future downturn or stagflation. However, their tactical view remains more measured, as they see short-term economic resilience still in place.

Echoing JPMorgan, Goldman Sachs emphasized that the market is no longer in a “bad news is good news” regime. Their own forecast for tonight is a payroll gain of 110,000. A print significantly below that could pull the S&P 500 down 1.5%, while a strong beat could drive a rally of 1% or more.

While the political drama between Trump and Musk may be dominating headlines, the real story for markets tonight is jobs — and what they signal about the U.S. economy in the face of trade disruptions. With expectations finely balanced, even modest deviations in the data could trigger a significant shift in rate expectations, equity valuations, and broader risk sentiment.