While most people are cooking on their grills for Labour Day, the Federal Reserve may be thinking more about the workers that the holiday honours.
In the coming months, the Fed will use the job market as a key indicator to decide how quickly to lower interest rates. Chair Jerome Powell has already made it clear that a quarter-point cut is possible at the meeting on September 18 and that unemployment is being closely watched. A very weak reading in the August jobs report, which comes out this Friday, could allow for a half-point move to begin the process of cutting rates.
For the most part, rate cuts are good for stocks. They make it cheaper for businesses to borrow money, which makes shares more appealing than bonds. It looks like the soft landing is going to happen. A soft landing is when growth slows down but doesn’t go into a slump.
Things could still go wrong, though, and the job market could cool down too fast. This would be bad for stocks. There is already more spending than income, and funds are shrinking. This is usually a bad sign of things to come. This earnings season has been a mixed bag for retailers so far. This week’s numbers from Dick’s Sporting Goods (DKS 0.81%) and Dollar Tree (DLTR -0.35%) will give us more information.
The general market has been going up for the past two years, but the technology rally that has been driving it seems to be running out of steam. News from Broadcom, a company that makes semiconductors
AVGO 3.75% on Friday will give us another look at what’s going on after Nvidia NVDA 1.51% reported last week.
In review, August may have been a red flag—stocks fell and then rose, finally making it through to a fourth straight monthly gain. Now that it’s clear that rate cuts are on the way, things could get even more rough. Investors shouldn’t think things will go smoothly.
