Investors should brace for a high-stakes day for the markets Friday, with a critical update on the employment front and a midday speech from Federal Reserve Chair Jerome Powell on deck.

The jobs report for February follows a big drop in consumer confidence at the start of President Donald Trump's second term, as well as growing concern about the economic toll of an accelerating trade war.

While hard data has yet to signal economic weakness, investors have been alert to potential spillover from worrying survey data as the Trump administration engages in tit-for-tat trade tariffs, as Elon Musk's "DOGE" team attempts to dramatically cut the size of the federal government, and as Republicans in Congress look to make room in the budget for tax cuts.

"We like to call it a five-point-harness day," said John Velis, Americas macroeconomic strategist at BNY Mellon, noting that the jobs report could reveal another piece of the economic puzzle. It also could "freak people out" if it comes in weaker than anticipated, he said.

Wall Street expects to see 170,000 new jobs added in February and unemployment holding steady at 4%. That reading is not yet expected to reflect federal-workforce cuts under Trump.

Stocks shock

Stocks have been prone to big swings following any surprises in economic data, as well as when Powell has talked about the likely path of interest rates in response to inflation and the labor market. That was the case even before growth scares were back in the conversation.

"The jobs data are going to be a key test of the economy's resilience here," said Andrew Husby, senior U.S. economist at BNP Paribas. While he's expecting the unemployment rate to remain steady for now, a risk is that negative confidence can accumulate quite rapidly and cause business plans to be dialed back.

In that scenario, the "Fed might have to do something to support growth," Husby said.

Markets have been roiled by Trump's trade war, with fears mounting that what was initially characterized as a way to secure U.S. borders from fentanyl and illegal immigration could spiral - and end up costing households, businesses and the U.S. economy dearly.

The 10-year Treasury yield had fallen sharply recently from a 4.8% peak on concerns about growth, but it was back up to 4.28% on Thursday.

Stocks jumped Wednesday after carmakers received a temporary reprieve from new 25% tariffs. Those levies risk being painful for Canada, Mexico and China, and could also cut deeply into America's industrial core and become a drag on the economy.

Despite new tariff exemptions for goods from Mexico, stocks were down sharply Thursday, dragging the Nasdaq Composite index COMP closer to correction territory. Any close below 18,156.50 for the tech-heavy index would cement a correction by marking a drop of at least 10% from its prior record high, according to Dow Jones Market Data. The Nasdaq was down 5% on the year as of Thursday.

The S&P 500 index SPX was 2.8% lower so far in 2025, while the Roundhill Magnificent Seven exchange-traded fund MAGS, which tracks a popular group of megacap technology stocks, was sliding deeper into correction territory. The Dow Jones Industrial Average DJIA was down 0.3% for the year, at last check.

That's not what Wall Street had been expecting given Trump's campaign promises of tax cuts and other "pro-growth" policies. His second term instead kicked off with tariffs, a growth scare and the Musk-led shrinking of the government.

A reordered world

Friday will mark the first full monthly jobs report of Trump's second term. In the weeks since his inauguration, the U.S. has has frayed longstanding military and economic alliances and has pushed Ukraine for access to its mineral wealth in exchange for helping it secure a peace deal with Moscow.

Stocks saw a brief reprieve on Wednesday, after a one-month pause on 25% tariffs was granted for cars coming into the U.S. from Canada and Mexico, following talks between Trump and executives from Ford Motor Co. $(F)$ General Motors Co. $(GM)$ and Stellantis $(STLA)$.

But Canada had already announced retaliatory measures, with Ontario Premier Doug Ford saying his province was also "ripping up" a $100 million contract with Musk's Starlink satellite internet provider and banning all U.S. companies from government contracts. Ontario and several other Canadian provinces also banned wine, beer and spirits from the United States.

Meanwhile, investors have been pulling away from the Canadian dollar and the mood in markets has soured, said Velis at BNY. In a worrying sign for the U.S. and its large deficit, demand for Treasurys in the 7- to 10-year range has dissipated among foreign buyers, with the tone getting worse since early December, he said.

"That's going to be a problem if it doesn't turn around," he added.