Stocks look to open in a positive fashion this morning. Investors are reviewing updated employment data. For the month of August, additions to U.S. nonfarm payrolls tallied a modest 187,000 versus economists’ outlook of 170,000 and the previous revised reading of 157,000. The unemployment rate markedly rose, coming in at 3.8%, up from 3.5%. Domestic hourly wages advanced only 0.2%, month to month, slightly below expectations and slower than the last reported rate of 0.4%. On a year-over-year basis, wages rose 4.3%, versus the recent trend of 4.4%. Labor participation ticked up two-tenths of a point, to 62.8%. The still-soft employment figures can be considered a positive, in that they may give the Federal Reserve reason to take a less-hawkish stance toward its inflation-fighting strategy. Shortly, investors will receive additional news regarding the manufacturing sector, which will probably continue to show a steady contraction in activity. Too, construction spending numbers will be announced, and likely will reflect further incremental expansion.
August proved to be a challenging month for equities. Through the 18th of the month, the major market indexes slid in the low single-digit range, with the blue-chip Dow Jones Industrial Average (DJIA) holding up the best (down about 1.3%) and the tech-leaning NASDAQ performing the worst (off by more than 5%). In the final seven trading days, however, share-price momentum turned more favorable. The NASDAQ reassumed the lead, gaining 4.3%, the Standard & Poor’s 500 improved 3.0%, and the DJIA advanced 1.8%.
In Jackson Hole, Wyoming, the Federal Reserve Bank of Kansas City held its Economic Policy Symposium from August 25-27. Publicly, Fed Chair Jerome Powell made no surprising statements on the current interest-rate strategy, providing some comfort to the equities markets. This week, economic data also helped to support stock valuations, that is, until late Thursday. Trending lower were July measures of home prices, job openings, consumer confidence, employment (as per Automatic Data Processing), gross domestic product, retail and wholesale inventories, initial jobless claims, and personal income. Conversely, pending home sales and personal spending picked up. Also of note, Thursday’s report on the core Personal Consumption Expenditures index, excluding volatile food and energy prices, though a bit on the high side, was generally in line with Wall Street expectations.
The late-August data suggest that the Fed will not need to redouble its inflation-reduction efforts. Economists and analysts on the Street largely anticipate the central bank will hold short-term interest rates at 5.25%-5.50% at its September 19-20 meeting. Chairman Powell seemingly suggested that one other 25-basis-point hike may be prudent before the end of this year. It appears the Fed is quite close to the end of its current rate-hiking cycle. Wall Street is hopeful that the policymakers will soon begin to cut interest rates, but we would not be surprised if this doesn’t happen until mid or late 2024. Ultimately, the policy trend will, of course, depend on incoming economic data. We note that in a typical year, September can be a very challenging month for the stock market. Trading in the last two months of the year, however, is usually supportive of share prices.
In recent days, share-price momentum among the leading NASDAQ stocks has improved. Investors’ enthusiasm regarding the potential for generative artificial intelligence has shown renewed vigor. The shifting of investments from tech issues to value stocks appears to have been suspended, at least for now. Volatility could perk up in this new month. We advise investors to maintain a good degree of diversity in the equities portion of their portfolios, while keeping a fair amount of cash on the side to assure downside protection and the funds to put to work in the event of a meaningful market pull back (i.e., “buy the dip”). – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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