The futures market is pointing to a mixed open to today’s stock trading. Early this morning, the U.S. Bureau of Labor Statistics (BLS) released employment data for the month of August. A total of 142,000 jobs were added to the economy, versus the consensus estimate of 161,000 and the sharply downward-revised tally of 89,000 (from 114,000) in July. Employers still continue to hire at a fairly decent clip. The unemployment rate came in at 4.2%, matching economists’ outlook and a tick below the previous-month measure of 4.3%. Unemployment remains near historic lows. Labor participation was at 62.7%, on a par with the July figure. Participation is gradually recovering from a nadir of 60.1% hit in April of 2020, in the midst of the global pandemic.
Last month, hourly wages rose 0.4%, better than the 0.2% pace reported for July. The experts were anticipating growth of 0.3%. Year over year, wages were up 3.8%; they gained 3.6% in the prior month. Wages continue to improve at a moderate rate, thereby not adding much fuel to the overall inflation fire. Though businesses have become a bit conservative about hiring, and workers more cautious regarding job hopping, the domestic employment picture is still generally solid. The Federal Reserve is watching the sector closely, intending to adjust monetary policy to avoid a severe recession. Also this morning, Wall Street will hear from New York Fed President John Williams and Fed Governor Christopher Wallace.
The central bank Federal Reserve Market Committee (FOMC) meets on September 17th and 18th, and Fed officials will have some key data points to digest before making a decision on short-term interest-rate policy. Notably, next week, new inflation numbers will be released. More specifically, the BLS will report on the August Consumer Price Index and the Producer Price Index. Other noteworthy data will include import prices, the weekly initial jobless claims figure, and the preliminary consumer sentiment measure for this month. Wall Street is hopeful that inflation will display a further slowing, making it easier for the Fed to cut interest rates. We would not be surprised to see jobless claims move higher and consumer sentiment remain relatively weak.
Investors are looking for the Fed to reduce the federal funds rate, currently 5.25%-5.50%, by at least 25 basis points at its meeting later this month. Too, the Street seems to be anticipating a series of similar cuts to yearend, possibly culminating in a one-percentage-point reduction for all of 2024. The central bank is aiming to achieve the challenging feat of a “soft landing” for the economy, that is, sustained growth, with modest inflation and no recession. Its chances for success appear reasonably good.
So far this week, the major domestic stock market indexes have had trouble moving into the green. A few factors have held share prices in the red. Manufacturing data, from both Standard & Poor’s and the Institute for Supply Management for the month of August, were soft. Last week’s jobless claims were higher than expected and total job openings moved lower in July. Rising recent factory orders, a still-expanding services sector, and better productivity were positive partial offsets. Another key negative though was investors taking profits on tech high-flyer NVIDIA (NVDA). Lately, the tech-weighted NASDAQ, broader Standard & Poor’s 500 (S&P 500), and the blue-chip Dow Jones Industrial Average have all lost some momentum. Even so, year to date, the S&P 500, NASDAQ, and the Dow are up about 15%, 14%, and 9%, respectively.
Share-price volatility has perked up. Elements of uncertainty surround the course of Fed rate policy, inflation, employment, corporate earnings, the outcome of the presidential election and, more broadly, the military conflicts in the Red Sea, the Middle East, and Eastern Europe. A portfolio founded on large-cap equities, supplemented by high-quality cash investments and a smattering of mid- and small-cap issues, seems a prudent strategy for the near term. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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