(Bloomberg) -- Treasury yields tumbled as data showing a slowdown in the US labor market boosted Wall Street’s bets on Federal Reserve rate cuts. Stocks fell as Nvidia Corp. extended its two-day selloff to 11%.

Just a few days ahead of the payrolls report, a reading on job openings known as JOLTS trailed estimates and hit the lowest level since 2021. The figures sparked an immediate reaction in the bond market, pushing the US two-year note’s yield briefly below the 10-year note as traders built up wagers on a super-sized rate reduction this month.

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Fed’s Beige Book Shows Stagnant, Declining US Economic Activity

“The markets may not be as nervous as they were a month ago, but they’re still looking for confirmation the economy isn’t cooling off too much,” said Chris Larkin at E*Trade from Morgan Stanley. “So far this week, they haven’t gotten it.”

With the Fed set to begin cutting rates in a few weeks, the main question now is how big the first reduction will be. Monthly US employment data due Friday will probably determine the answer.

Investors are on the edge of their seats after the release of the jobs report last month stoked growth fears. Jerome Powell has made it clear the Fed is now more concerned about risks to the labor market than inflation, and another bad report would bolster the case for an outsize rate cut.

“Markets seem to see September as a coin flip between 25 and 50 basis points,” said Neil Dutta at Renaissance Macro Research. “I think going 25 bp risks the same market dynamic as skipping the July meeting. It’ll be fine until the next data point makes investors second-guess the decision, fueling bets the Fed is behind the curve. Go 50 when you can, not when you must.”

Treasury 10-year yields fell eight basis points to 3.76%. Swap traders have fully priced in a quarter-point Fed cut in September — and a more than 30% chance of a half-point reduction. A total of 110 basis points of easing is expected for 2024. The S&P 500 fell 0.2%.

Nvidia saw its worst two-day plunge since October 2022. Responding to a Bloomberg News report about the US Department of Justice sending out subpoenas as part of an antitrust probe, the chipmaker said it has been in contact with the agency — but has “not been subpoenaed.”

To Krishna Guha at Evercore, the latest job-openings figures were “on the soft side,” but they do not suggest any rapid deterioration in the labor market.

“The still low level of layoffs and tick up in hires suggests the labor market is not cracking,” said Guha. “On net, we think JOLTS nudges down the bar for what the employment report Friday would need to deliver in order for the Fed to cut 50 bp out the gates in September, though not radically.”

Rate options traders stepped up wagers that the Fed will kick off its easing cycle with a half-percentage-point cut this month.

Options tied to the Secured Overnight Financing Rate show that open interest, or the amount of positions owned by traders, has surged across a number of call contracts that expire on Sept. 13, five days before the central bank’s post-meeting announcement.

Kristina Hooper at Invesco expects the Fed will cut only 25 basis points, but anticipates that would only be the start of what is likely to be a “very significant easing cycle.”

The stock market could be heading for correction if payrolls data comes in weak on Friday, according to Scott Rubner at Goldman Sachs Group Inc.

The bank’s clients are already positioning for a negative technical setup for share prices in the second half of September, Rubner wrote, adding that he expects a risk-off move to begin on Sept. 16.

“A market correction may start to get traction if payrolls are weak,” he wrote.

Bank of America Corp. clients were net sellers of US equities for a second consecutive week, recording the biggest net sale of shares since late 2020 as uncertainty grows around the economic outlook.

Institutional, hedge fund, and retail clients all offloaded US stocks, with net sales totaling $8 billion in the week ended Aug. 30, quantitative strategists led by Jill Carey Hall said Wednesday in a note.

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This story was produced with the assistance of Bloomberg Automation.

--With assistance from Vildana Hajric.