Stocks Flat to Kick Off September amid Signs of Slower Job Growth

Stocks Flat to Kick Off September amid Signs of Slower Job Growth

Global markets ended the week modestly higher, even as data pointed to a cooling labor market. The MSCI All Country World Index (ACWI) gained 0.46%, while U.S. equities, measured by the S&P 500, rose 0.37%. Small caps extended their recent strength with a gain of more than 1%, and Emerging Markets led all major asset classes with a 1.42% advance.

U.S. Labor Market

Jobs Friday brought several signs of a cooling U.S. labor market. For the first time since 2021, job openings fell below the number of people seeking work. ADP reported 54,000 private payroll gains in August, missing expectations and down from July’s 106,000. Nonfarm payrolls rose just 22,000, well short of forecasts for 75,000, while the unemployment rate edged up to 4.3%, the highest this year. Revisions showed July improving to 79,000 jobs, but June turning negative with a loss of 13,000 — the first monthly decline since 2020.

Fed Rate Cut

Following Friday’s jobs report, markets are pricing in a 100% probability of a September Fed rate cut, with a small chance of an outsized 0.5% move. Investors now expect six total cuts, potentially bringing the federal funds rate to 3.0% by 2026, signaling a more accommodative policy backdrop for equities and bonds.

Bond Market

Last week’s jobs data also drove notable moves in the bond market. The 2-year Treasury yield, closely tied to the Fed’s near-term policy path, fell to its lowest level of the year, under 3.5%, while the 10-year yield, which reflects growth, inflation, and debt risk, dropped below 4.1%. The yield curve — the spread between 10- and 2-year yields — steepened, a development that can benefit lenders like large banks by widening margins on borrowing short-term and lending long-term.

Looking Ahead

For the week ahead, all eyes will be on Thursday’s Consumer Price Index (CPI) report, one of the final major data points the Fed will consider ahead of its September 17 meeting. The report will help guide expectations for a potential 25- or 50-basis-point rate cut. The most recent CPI reading in August showed inflation holding steady at a 2.7% annual rate in July.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.