Stock futures are trading unevenly this morning, following three days of solid gains in the market. The Automatic Data Processing (ADP) employment report showed that job gains slowed in August with only 177,000 jobs added, marking the lowest outcome since March. This figure underperformed the 371,000 jobs added in July, and 200,000 jobs that economists estimated would be added. The report also indicated a slowing in pay increases and less job switching. The market took this new information positively and rose slightly following the announcement. Still, prices are not far above breakeven levels, suggesting a mixed start to the trading day.
The stock market rose strongly yesterday, as the Job Openings and Labor Turnover report showed that job openings declined in July to 8.827 million, representing the third consecutive monthly decline. Traders believe this will allow for more flexibility in Federal Reserve interest rate policy going forward, given that labor costs have been a key source of inflationary pressures. The market trended higher throughout the day and ended near its peak. Overall, the S&P 500 rose 64 points (up 1.45%), the NASDAQ increased 239 points (up 1.74%), and the Dow Jones Industrial Average climbed 293 points (up 0.85%). Market breadth was notably positive, favoring advancers over decliners by a 4.6-to-1.0 ratio. All eleven market sectors rose yesterday, and consumer discretionary and communications equities were among the best performers. However, interest-rate-sensitive REITs, along with consumer staples stocks, were among the weakest performers on a relative basis.
In commodity news, oil prices rebounded yesterday, benefiting from lower fuel inventories and increased worries about reductions in supply caused by Hurricane Idalia, which has caused some companies to shut down offshore drilling activities in its path.
Elsewhere, U.S. Treasury bond yields were mostly higher yesterday as traders moved out of this asset class and into the stock market. The yield curve remains sharply inverted, with short-term yields much higher than those on debt securities with longer durations, which is usually thought to portend a coming recession.
Additionally, traders are pricing in a small possibility of another rate hike at the September Fed Open Market Committee meeting. The Chicago Board Options Exchange Volatility Index or VIX, commonly known as the fear index, continued its slide over the past three days as traders demanded less options protection.
Several economic reports will be released in the days ahead. These include the July core- and non-core Personal Consumption Expenditures Index and personal spending and income on Thursday. On Friday, August U.S. nonfarm payrolls, the August unemployment rate, the Institute for Supply Management’s Manufacturing Index, and the final S&P U.S. Manufacturing Purchasing Managers’ Index will be released.
Several dozen companies will report earnings in the days ahead, but notably including Dow-30 component Salesforce, Inc. (CRM) after the close today. Overall, we think most eyes will be looking at inflation-related data due in the days ahead. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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