NEW YORK, Sept 6 (Reuters) - Uncertainty over the U.S.

economy's health is rippling through markets, adding fuel to an

already-volatile period that has investors grappling with a

shift in Federal Reserve policy, a tight U.S. election and

worries over stretched valuations.

U.S. stocks tumbled on Friday after closely watched jobs

data showed labor market momentum slowing more than expected,

suggesting a narrower path for the U.S. to achieve a soft

landing, in which the Fed is able to cool inflation without

badly damaging economic growth.

The Fed is expected to cut interest rates at its Sept. 17-18

meeting, but the data revived fears that months of elevated

borrowing costs have already started to pressure the economy.

That is a potentially unwelcome development for investors, after

prospects for rate cuts against a background of resilient growth

helped drive the S&P 500 to record highs this year.

"The data shows that we remain on the soft-landing path, but

clearly there's more downside risks to which the markets are

going to be sensitive," said Angelo Kourkafas, senior investment

strategist at Edward Jones. "The expectation for elevated

volatility is a realistic one."

Evidence of ebbing risk appetite showed up across markets.

The S&P 500 dropped 1.7%, with major declines in technology and

growth stocks, among the market's biggest winners this year.

Nvidia ( NVDA ), the poster child of this year's artificial

intelligence excitement, was recently down over 4% and fell to

its lowest level in about a month.

Meanwhile, the Cboe Market Volatility index, also

called Wall Street's "fear gauge," hit its highest level in

nearly a month on Friday.

Several factors threaten to compound the market's

uncertainty. Though futures bets on how much the Fed will cut

rates later this month showed investors pricing in a nearly 75%

chance of a 25 basis point reduction, the issue remains far from

settled.

"Markets have had to grapple with - just as the Fed is doing

- whether the August payroll data reflects a labor market

normalizing towards pre-COVID levels or whether it's indicative

of an economy losing dangerous momentum," Quincy Krosby, chief

global strategist for LPL Financial, said in written commentary.

Others took a dimmer view. Citi analysts said the report

warranted a 50 basis point cut later this month.

"The takeaway from the range of labor market data is clear -

the job market is cooling in a classic pattern that precedes

recession," analysts at Citi wrote.

Inflation data next week could shed further light on the

strength of the economy and help solidify bets on how much the

Fed might cut rates.

Valuation concerns are also reemerging. The S&P 500, which

is up over 13% this year, is trading at a price-to-earnings

ratio of nearly 21 times expected forward 12-month earnings

estimates as of Thursday, well above its historical average of

15.7, according to LSEG Datastream.

Despite a recent swoon, the S&P 500 technology sector

- by far the biggest group in the index - is trading

at over 28 times expected earnings, compared to its long-term

average of 21.2.

"We've come a long way in a relatively short period of time

and I think you're starting to see some businesses do the math

on AI and ask whether it's really worth the cost, which will

weigh on the big tech stocks," said Mark Travis, a portfolio

manager at Intrepid Capital Management.

Investors are also closely watching a tight U.S.

presidential election which is starting to head into the home

stretch. The race between Democrat Kamala Harris and Republican

Donald Trump could draw more investor focus on Tuesday, when the

two candidates debate for the first time ahead of the Nov. 5

vote.

So far, the market gyrations have bolstered September's

reputation as a tough time for investors. The S&P 500 has fallen

an average of nearly 0.8% in September since 1945, making it the

worst month for stocks, CFRA data showed. The index is already

down 4% since the month began.

"Investors are saying let's hope we can have a soft

landing," said Burns McKinney, senior portfolio manager at NFJ

Investment Group. "It still feels like it's fairly likely, but

with each weaker jobs number it's becoming less and less the

base case."