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S&P 500 posts weekly drop, backing off record high

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Tech sector leads pullback, weak labor data also in focus

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Stellar Q3 earnings season overall coming to a close

By Lewis Krauskopf

NEW YORK, Nov 7 (Reuters) - Investors will seek clues

about the health of the U.S. economy in the coming week

following worrisome labor market reports and technology-led

turbulence that has knocked the stock market off record highs.

The S&P 500 ended on Friday with a weekly decline after

three straight weeks of gains. The benchmark index was last down

about 2.4% from its all-time closing peak on October 28 even

after a generally strong third-quarter earnings season for large

U.S. companies.

This week, concerns about expensive equity valuations,

especially for high-flying stocks linked to enthusiasm over

artificial intelligence, were exacerbated by tepid jobs

data, including a report that showed surging layoff

announcements from U.S. employers.

Alternative data released by private sector bodies have

become more important for investors because the U.S. federal

shutdown that began on October 1 has limited government

releases.

"We're not getting a lot of economic data," said Anthony

Saglimbene, chief market strategist at Ameriprise Financial. "At

current valuations and the kind of gains that we've seen...

investors are just starting to be a little bit more cautious. I

don't think that is bad, but it is coming at a time where there

is growing uncertainty around the pace of growth in the

economy."

Investors were gauging whether the pullback in equities

represented profit-taking and a healthy reset after an extended

climb, or the start of a more severe slide. Fears that stocks

are in an "AI bubble" have kept Wall Street on edge, with the

benchmark S&P 500 up 14% year-to-date and 35% since its low for

the year in April.

The S&P 500 technology sector, which has led the

bull market that began more than three years ago, has been hit

harder in this latest drawdown, falling about 6% since last

week.

A series of reports on Thursday suggested deteriorating U.S.

labor market conditions. Data from workforce analytics company

Revelio Labs showed 9,100 jobs were lost in October, while U.S.

employers' planned layoffs soared to over 153,000 last month,

global outplacement firm Challenger, Gray & Christmas said. The

Chicago Fed estimated that the U.S. jobless rate likely edged up

in October to the highest in four years.

That data came a day after the ADP National Employment

Report showed private employment rebounded by 42,000 jobs in

October.

The Challenger layoffs report, combined with the lack of

government jobs data, "raises a red flag in terms of whether or

not the labor market has really stabilized," said Peter

Cardillo, chief market economist at Spartan Capital Securities

in New York.

Next week would have been a busy week of economic data, with

government reports due on consumer and producer prices and

retail sales. Those releases are poised to be delayed due to the

shutdown. Investors will instead seek insight on the economy

from traditionally more secondary reports, including the small

business optimism index due to be released on Tuesday by the

National Federation of Independent Business.

As investors weighed the economic impact of the shutdown,

the U.S. transportation secretary

warned

on Friday the government could force airlines to cut up to

20% of flights if the shutdown did not end.

The lack of government data is muddying the outlook for the

Fed, which must decide whether to cut interest rates again at

its next policy meeting in December. After the central bank

eased by a quarter percentage point for a second straight

meeting on October 29, Fed Chair Jerome Powell said another such

reduction was not a foregone conclusion.

"The Fed needs help trying to figure out what's going on in

the jobs market. They're getting seemingly conflicting signals

and what they decide to do in December has ramifications

obviously for the stock market," said Chuck Carlson, chief

executive officer at Horizon Investment Services.

Fed funds futures late on Friday were pricing in a roughly 65%

chance of a rate cut in December. Before Powell's October

comments, investors had viewed such a cut as almost a done deal.

Investors were watching for developments that might suggest

the end of the shutdown, which this week became the longest in

U.S. history.

Focus was also on remaining high-profile quarterly reports, as a

stellar earnings season in general nears a close. With 446

companies in the index having reported, 82.5% posted profits

above analyst expectations, which would be the highest beat rate

since the second quarter of 2021, LSEG IBES said on Friday.

Reports due next week include Walt Disney ( DIS ) and tech

stalwart Cisco Systems ( CSCO ). Those lead up to the quarterly

report the following week from semiconductor firm Nvidia ( NVDA )

, the largest company in the world by market value that

has symbolized investor enthusiasm for AI.

"I would just expect a little bit more volatility around

technology leaders and technology as a whole heading into that

Nvidia ( NVDA ) report," Saglimbene said.