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  • Writer's pictureDustin Eldridge, CFP®, CPWA®

Last Week on Wall Street - September 2nd, 2023

S&P 500: 2.50% DOW: 1.43% NASDAQ: 3.25% 10-YR: 4.17%

What Happened?

Equity markets regained stability and pushed higher this week, with the S&P 500 posting its strongest performance since June. One of the key factors driving market sentiment remains the outlook for the Federal Reserve's interest rate decisions as it approaches the later stages of its tightening cycle. This week's data, particularly the signs of a labor market loosening and the digestion of Jerome Powell's Jackson Hole speech, have prompted market participants to dismiss the possibility of a rate hike in September and reduce the likelihood of further hikes. As a result, bond yields moderated, and there is now greater optimism that the economic impact of these rates will be less severe. These developments have positively impacted stock performance. Beneath the surface, Technology (+4.4%) reclaimed the top of the leaderboard this week with economically sensitive areas, such as Energy (+3.7) and Materials (+3.6%), performing well. Utilities (-1.5%) and Staples (-0.4%) were the only sectors to post losses on the week.

  • Nonfarm payrolls grew by a seasonally adjusted 187,000 for the month, above the Dow Jones estimate for 170,000

  • The unemployment rate was 3.8%, up significantly from July and the highest since February 2022

  • The labor force participation rate rose to 62.8%, the highest since February 2020

  • Average hourly earnings increased 0.2% for the month and 4.3% from a year ago.

  • Both below respective forecasts

The key takeaway - The August jobs report shows a labor market that may have reached its peak after a robust two-year surge and now appears to be easing. Although the overall number of payrolls increased, signifying more hiring activity, the labor force participation rate has finally returned to pre-pandemic levels due to an influx of workers. The uptick in the unemployment rate will likely be welcomed by the Federal Reserve, as the exceedingly tight job market has been a significant factor driving inflation. Additionally, lower-than-expected wage gains suggest that job demand may be diminishing, potentially moderating its impact on inflation.

  • The Federal Reserve's preferred inflation gauge rose a mild 0.2% in July

  • The increase in prices over the past year, meanwhile, moved up to 3.3% from 3%

  • The PCE core rate of inflation, which excludes food and energy, also increased 0.2%

  • The rate of core inflation over the past year edged up to 4.2% from 4.1% in the prior month

The key takeaway - Later this month, the Federal Reserve is set to convene to determine whether the current state of economic data justifies another interest rate hike to curb inflation. Alternatively, they might opt to pause, allowing more time for additional data to come through. While the recent PCE report does not raise significant concerns for the Fed, it also fails to indicate progress over the past month. Optimistically, this could be merely a temporary setback on the path to a continued deceleration in the rate of price increases. Pessimistically, inflation might prove more stubborn at these elevated levels, or worse, it could regain momentum and accelerate further.

  • Job openings in the U.S. fell in July to a 28-month low of 8.8 million

  • Job listings dropped from a revised 9.2 million June (originally 9.5 million), the fewest number of job openings since March 2021

  • The number of people quitting jobs, meanwhile, sank to 3.5 million

  • Job openings fell the most in white-collar jobs and professional businesses

The key takeaway - Job openings and quit rates offer valuable insights into the potential trajectory of the job market. The figures shed light on the outlook employers and employees hold for their future prospects. Normally, job openings tend to align with employer's expectations of the economic environment ahead, as they seek to avoid over- or under-hiring. Employees tend to quit at higher rates when they perceive improved opportunities within the economy, and that this dynamic will persist. This recent data indicates a slowing of these expectations from both the employer and employee perspectives. Ideally, this materializes into a slowing of the white-hot jobs markets that have been a pillar of inflation's stubborn descent.

From The Waterloo Watercooler

  • The Department of Labor proposed a rule that would require employers to pay overtime premiums to salaried employees who make less than ~$55,000

  • Hurricane Idalia made landfall in Florida’s Big Bend region as a Category 3 storm before weakening and blowing into Georgia and the Carolinas

  • 3M agreed to a $6 billion settlement to resolve claims its earplugs led to hearing damage for US veterans and service members

  • OpenAI launched ChatGPT Enterprise, the business version of its popular chatbot, as it looks to boost revenue from the product

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