After a month of volatile market movements, the S&P 500 (^GSPC) recorded its fourth consecutive month of gains at the end of August.
For the month, the S&P 500 gained nearly 2.3%, while the Dow Jones Industrial Average (^DJI) gained nearly 1.8% to hit an all-time high. The Nasdaq Composite (^IXIC), meanwhile, gained more than 0.6%.
US markets were closed on Monday for Labor Day, and attention now turns to upcoming jobs data due to be released later this week.
The August jobs report, due out Friday, will dominate economic news headlines next week as investors wait to see whether signs of a slowdown contained in the July jobs report were overdone or an early warning sign of a more general slowdown.
The programme also includes current information on job vacancies and wage growth in the private sector, as well as activity checks from the services and manufacturing sectors.
In corporate news, quarterly reports from Broadcom (AVGO) and Dick’s Sporting Goods (DKS) headlined a quiet week for earnings releases.
A closer look at the work
The U.S. economy added 114,000 new jobs in July, well below expectations, and the unemployment rate hit 4.3%, its highest in nearly three years. The report fueled recession fears as concerns grew about a weakening labor market.
But in the weeks that followed, more data suggested that the U.S. economy remained fairly robust. Unemployment numbers, a weekly indicator that economists use to track the labor market between employment reports, reversed their upward trend in July.
And many economists believe this points to weather-related causes influencing the July employment report and overstating labor market weakness.
Morgan Stanley economist Sam Coffin argued in a note to clients last week that a key reason unemployment rose to 4.3% in July was an unusually large increase in temporary layoffs. As the immediate shock to the Texas labor market from Hurricane Beryl fades, Coffin does not expect a repeat of that trend.
Coffin and the Morgan Stanley economics team forecast that unemployment will fall to 4.2 percent, while the U.S. economy added 185,000 new jobs last month.
“We expect the Fed to cut 25 basis points in September due to the renewed acceleration in employment,” Coffin wrote.
Economists surveyed by Bloomberg expect the U.S. economy to have added 163,000 jobs in August, while the unemployment rate fell to 4.2%, the first decline in the unemployment rate since March.
The Fed has “room for maneuver”
On Friday, the latest reading of the Fed’s preferred inflation indicator showed that price increases continued their downward trend toward the Fed’s 2% target.
This, economists argue, puts further pressure on next Friday’s jobs report, which will determine whether the Fed will cut interest rates by 25 or 50 basis points at its September meeting.
“A Fed rate cut in September is a sure thing after Chairman Powell’s speech at Jackson Hole,” wrote Ben Ayers, senior economist at Nationwide, in a note to clients on Friday. “But the continued cooling of inflation could give the Fed room to cut rates more aggressively in future meetings, especially if the labor market deteriorates significantly.”
Ayers added: “We still forecast more cautious cuts (25 basis points) at the remaining three FOMC meetings in 2024, but the door is open for larger cuts if economic conditions weaken more than expected.”
According to the CME FedWatch tool, markets early Tuesday were calculating a 31% probability that the Fed would decide to cut interest rates by 50 basis points instead of 25 at its September meeting.
Still, traders have priced in a full percentage point Fed rate cut this year. With only three meetings left this year, markets are expecting an even bigger Fed cut at one of the remaining meetings.
Not so great
Nvidia (NVDA) reported earnings last week that again beat estimates, but the stock lagged the following day as investors focused on how Nvidia’s pace of surprise and overall growth have slowed over the past year.
Notably, the stock’s 6 percent decline did not trigger a broad sell-off in the technology sector or the market as a whole.
Rather, it was the latest sign that after the Magnificent Seven led the market for two years, other areas of the market are now outperforming the leading technology stocks.
In a research note on Friday, Savita Subramanian, head of U.S. equity strategy and quant strategy at Bank of America, highlighted that more than 70% of stocks have outperformed the S&P 500 since a promising inflation reading on July 11.
The equally weighted S&P 500, which is not as affected by the price movements of larger stocks because all index members have equal influence, has outperformed the capitalization weighted index.
From July 11 to August 29, the Magnificent Seven – Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA) and Nvidia – fell a total of 10.2%. The other 493 stocks in the S&P 500, however, gained 4.1%.
As Kevin Gordon, chief investment strategist at Charles Schwab, pointed out, this resulted in the Magnificent Seven recording their two worst months compared to the S&P 500 since December 2022.
Weekly calendar
Monday
The markets are closed because of Labor Day.
Tuesday
Economic data: S&P Global US manufacturing, August ending (48.1 expected, previously 48); construction spending month-on-month, July (0.1% expected, previously -0.3%); ISM manufacturing, August (47.5 expected, previously 46.8)
Revenue: Gitlab (GTLB), Zscaler (ZS)
Wednesday
Economic data: Job openings, July (8.1 million expected, previously 8.18 million); Factory orders, July (+4.6% expected, previously -3.3%); Durable goods orders, July final (9.9% previously); Mortgage applications for MBA studies, week ending August 30 (+0.5%); Release of the Fed’s Beige Book
Revenue: C3.ai (KI), Casey’s (CASY), ChargePoint (CHPT), Dick’s Sporting Goods (DKS), Dollar Tree (DLTR), Hewlett Packard Enterprise (HPE), Hormel Foods (HRL)
Thursday
Economic data: ADP private sector payrolls, August (+145k expected, previously +122k); Nonfarm productivity, second quarter, final (2.4% expected, previously 2.3%); Initial jobless claims, August 31 (231k previously); S&P Global US Services PMI, final August (55.2 previously); S&P Global US Composite PMI, final August (54.1 previously); ISM Services Index, August (50.9 expected, previously 51.4); Challenger job cuts, year-on-year, August (+9.2%)
Revenue: Broadcom (AVGO), DocuSign (DOCU), Nio (NIO)
Friday
Economic calendar: Non-farm payroll employment, August (+163,000 expected, previously +114,000); Unemployment rate, August (4.2% expected, previously +4.3%); Average hourly wage, month-on-month, August (+0.3% expected, previously +0.2%); Average hourly wage, year-on-year, August (+3.7% expected, previously +3.6%); Average weekly hours worked, August (34.3 expected, previously 34.2); Labor force participation rate, August (62.7% expected, previously 62.7%)
Revenue: Big Lots (BIG)
Josh Schafer is a reporter at Yahoo Finance. Follow him on X @_joshschafer.
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