Non-farm payrolls are about to be released, which will affect the future market trend

Morgan Stanley outlined three main possible outcomes for the September employment data released on October 4:

The best case scenario is that the unemployment rate falls below 4.1% and non-farm payrolls exceed 150,000. In this case, the market may see continued rotation, with funds flowing into cyclical stocks as investors are willing to take more risks. Small-cap stocks, industrial stocks, discretionary consumer goods and real estate stocks will also benefit as future rate cuts are implemented.

The worst case scenario is that the unemployment rate rises above 4.3% and non-farm payrolls fall below 100,000. This will make the market begin to be risk-averse, and defensive stocks will have the upper hand.

Another possibility is that the employment report remains at the current level. There is no obvious risk level for this mixed result, but large-cap quality stocks may outperform other stocks overall.

Bank of America also emphasized that the employment report is now the biggest market driver before the election. Stock index options pricing indicates that the S&P 500 will fluctuate by more than 1% on October 4, regardless of direction.

Of course, Morgan Stanley is not only concerned about the employment situation. They also look at earnings revisions, manufacturing data, the Conference Board's leading economic indicators and the employment trend index.

Wilson wrote, "The bottom line is that the Fed's larger-than-expected rate cuts can keep high-quality stocks higher for longer and even help low-quality stocks find some support; however, labor and other growth data may now need to improve to prove that these conditions persist before the end of the year."

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