Stocks will get early March test with high stakes jobs report next week

The stakes for next week’s jobs report just got higher after Friday’s hot inflation print, amid rising fears that artificial intelligence will inflict greater damage to the labor market than investors thought. Stocks sold off Friday , with the Dow Jones Industrial Average last tumbling more than 600 points after the latest wholesale inflation print showed traders have been underestimating pricing pressures. Puzzlingly, the 10-year Treasury yield that would in theory go higher on a hotter inflation report remained below 4%. This raised fears of a stagflation stagflation scenario — in which higher inflation is coupled with slowing economic growth — that kept them in the bond market. Investors trying to understand the economic outlook will read the nonfarm payrolls report carefully, as it will have to tread a fine line: Not too hot as to hurt the interest rate outlook, not too cold as to add to fears of a rapidly deteriorating labor market. .DJI 5D mountain Dow industrials 5-day chart “There is a whole debate in policy making — monetary policy making — about the fact that you could have good employment and yet keep prices into check,” said Giuseppe Sette, co-founder at Reflexivity. “But underlying all of this, there is the parallel fear that comes from the AI evolution, and the impact it could have on jobs, and whether that could be a Citrini report kind of scenario,” Sette added. He was referring to a Citrini Research report that warned AI could destroy the economy in two years, a speculative thesis that spooked markets. AI disruption The latest estimates show that the U.S. economy is expected to have added 60,000 jobs in February, and that the unemployment rate held at 4.3%, according to FactSet. That forecast is far below the blowout report the prior month that showed a headline number of 130,000 jobs. However, it could also reflect the new reality investors have been accepting of in recent months: A “no hire, no fire” labor market in which a smaller pool of workers and higher productivity can justify slowing jobs growth. Except fears are higher now amid rising signs that AI could damage the employment picture more than investors had been expecting. The latest headline adding to those fears came from Block, which said Thursday that it’s firing 4,000 employees as it utilizes AI to automate more work. The stock on Friday surged as much as 24% on the news. AI is the driving force behind the S & P 500’s more than 64% total rally over the past three years. But what was once the market’s friend has recently turned more foe as uncertainty around how the technology will disrupt corporate business models contributed to a selloff in many parts of the market this year. Software stocks have been battered, with the iShares Expanded Tech-Software Sector ETF (IGV) down 8% just this month on fears agentic AI automating work will make the sector obsolete. The IGV is in a bear market. Real estate stocks even turned victim to AI, as investors weighed the possibility that AI will one day make tall office towers unnecessary. Interest rate outlook A hotter than expected report wouldn’t be welcomed by markets either. Mizuho Americas chief economist Steve Ricchiuto expects payrolls of 100,000 in February, much higher than is consensus, though he also expects that the January number will be revised down possibly as much as 50,000. He also said the unemployment rate will hold at 4.3%. That could show investors the U.S. economy is even more exceptionally resilient than they thought, but could also hurt the interest rate outlook following this week’s inflation print. While markets are currently pricing in two cuts this year, Ricchiuto expects that could actually be zero, which would be unwelcome news for stocks. “I think we’d be in a sideways correction for an extended period,” Ricchiuto told CNBC. “The markets are trying to find the technical bottom, and it looks like it’s found it, but we need to test it one or two more times to see if we’ve actually hit it.” March weakness The jobs report will come in March, which has historically been a strong month for stocks but has been extremely volatile in recent years. It’s the fourth best calendar month for the S & P 500, rising 1% on average in a typical year, and 1.2% in midterm election years, according to the Stock Trader’s Almanac. That could bear out to be true if February’s losses in the major averages means enough of the AI excess has been flushed out of the stock market, meaning investors feel readier to embrace the trade. In fact, tech is now nearly as attractively valued as consumer staples. “It’s absolutely possible that the next move is up,” Reflexivity’s Sette said. On Friday, however, stocks were heading for a sour ending to the month. The Dow was on pace for a 0.1% loss in February, while the S & P 500 slid 1.3%. The Nasdaq Composite was the worst performer, down more than 3%. Week ahead calendar All times ET. Monday, March 2 9:45 a.m. S & P Global PMI Manufacturing final (February) 10:00 a.m. ISM Manufacturing (February) Earnings: Norwegian Cruise Line Holdings Tuesday, March 3 Earnings: Ross Stores , CrowdStrike Holdings , AutoZone , Best Buy Co. Wednesday, March 4 8:15 a.m. ADP Employment Survey (February) 9:45 a.m. S & P Global PMI Services final (February) 10:00 a.m. ISM Services PMI (February) Earnings: Broadcom , Brown-Forman Thursday, March 5 8:30 a.m. Export Price Index (January) 8:30 a.m. Import Price Index (January) 8:30 a.m. Initial Claims (02/28) 8:30 a.m. Unit Labor Costs preliminary (Q4) 8:30 a.m. Productivity preliminary (Q4) Earnings: Cooper Companies , Costco Wholesale , Kroger , Fastenal , Ciena Friday, March 6 8:30 am. February Jobs Report 8:30 a.m. Retail Sales (January) 10:00 a.m. Business Inventories (December) 10:00 a.m. Wholesale Inventories final (January) 3:00 p.m. Consumer Credit (January)