Nervous September ahead after Strong August, After a month filled with ups and downs, the S&P 500 index (GSPC) has closed August with its fourth consecutive winning month.
The index rose nearly 2.3%, while the Dow Jones Industrial Average (DJI) climbed 1.8% to reach an all-time high. The Nasdaq Composite (IXIC) increased by over 0.6%. With the markets closed for Labor Day on Monday, all eyes now shift to the upcoming labor market data.
Focus on Labor Market Data
Investors are eagerly awaiting the August jobs report. They want to see if the signs of slowing job growth in July were exaggerated or if they indicate a broader economic slowdown. In July, the U.S. economy added only 114,000 jobs, falling short of expectations. The unemployment rate also reached 4.3%, its highest level in nearly three years. This news raised recession fears and concerns about a weakening labor market.
However, more recent data suggests that the economy remains strong. Unemployment claims, which indicate labor market trends, have reversed their upward trajectory seen in July. Morgan Stanley economist Sam Coffin predicts unemployment will fall to 4.2% and job creation will rise to 185,000 for August. Economists surveyed by Bloomberg expect 163,000 new jobs and a slight drop in unemployment to 4.2%.
Nervous September ahead after Strong August – The Fed’s Flexibility
The latest inflation data, preferred by the Federal Reserve (Fed), shows that price increases are moving closer to the Fed’s target of 2%. This places additional importance on the upcoming labor report, as it could influence the size of the Fed’s interest rate cut in September.
Senior economist Ben Ayers from Nationwide believes a rate cut in September is likely.
However, if inflation continues to cool, the Fed may have the flexibility to implement more significant cuts in the future, especially if the labor market weakens. Currently, markets estimate a 31% chance of a 50-basis-point rate cut by the Fed this month, with expectations for a full percentage point of cuts throughout the year.
Shifting Market Focus
Last week, Nvidia (NVDA) reported earnings that exceeded estimates, but the stock’s decline afterward shows a shift in market focus. The “Magnificent Seven” tech stocks, which have led market growth in recent years, are seeing slower growth. Bank of America’s Savita Subramanian notes that over 70% of stocks have outperformed the S&P 500 since mid-July. This trend suggests that other sectors are gaining strength and momentum in the market.
Nervous September ahead after Strong August – What’s on the Economic Calendar?
As we look ahead, here are some key dates for the week:
Tuesday:
- Economic Data: S&P Global US Manufacturing, Construction Spending, ISM Manufacturing
- Earnings: Gitlab, Zscaler
Wednesday:
- Economic Data: Job Openings, Factory Orders, Durable Goods Orders, Mortgage Applications, Fed Beige Book Release
- Earnings: C3.ai, Casey’s, ChargePoint, Dick’s Sporting Goods, Dollar Tree, Hewlett Packard Enterprise, Hormel Foods
Thursday:
- Economic Data: ADP Private Payrolls, Nonfarm Productivity, Initial Jobless Claims, S&P Global US Services PMI, ISM Services Index, Challenger Job Cuts
- Earnings: Broadcom, DocuSign, Nio
Friday:
- Economic Data: Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings, Labor Force Participation Rate
- Earnings: Big Lots
Source: Yahoo Finance
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