After coming back from the Labor Day weekend to start September trading, stock and bond investors in the U.S. will be looking at a big jobs report this week.
Victoria Fernandez, chief market analyst at Crossmark Global Investments, said in an interview that the U.S. jobs report, which is set to come out on Friday, will be “huge” for the market. She said that the August report on job growth and the jobless rate could make stocks and bonds move.
When July job data came out in early August, it was worse than what Wall Street expected and showed that the unemployment rate rose to 4.3%. This sent shockwaves through the stock market. But U.S. stocks have come back from their recent drop. On Friday, the Dow Jones Industrial Average set a new record high, while the S&P 500 finished the day 0.3% below its all-time high, which it reached on July 16.
Bob Elliott, co-founder, CEO, and chief financial officer of Unlimited Funds, said over the phone, “The economy as a whole continues to look pretty strong.” But “it’s still not clear if we’ll have a “no landing,” a soft landing, or a hard landing.”
In his August 23 speech at Jackson Hole, Federal Reserve Chair Jerome Powell said that the job market has “cooled considerably from its formerly overheated state.” This has made investors pay close attention to the job market. And since inflation has dropped a lot since its high point in 2022, Powell made it clear that interest rates would be going down soon.
An interview with Phil Camporeale, a portfolio manager for J.P. Morgan Asset Management’s global allocation strategy, on the phone said that the much-anticipated jobs report coming out on Friday could “decide” whether the Fed cuts its benchmark rate by a quarter percentage point or a half point at its policy meeting in September.
Camporeale thinks that the job market will look better in August than it did in July. This could allow the Federal Reserve to start lowering interest rates gradually in September, with each step being a quarter percentage point. He said that a bigger cut would show that people are more worried about the economy and job market.
According to a note released by Barclays on August 29, economists think the jobless rate fell to 4.2% in August. “This is part of the unwinding of the rise in the unemployment rate in July,” they wrote. “This rise was partly caused by a rise in temporary unemployment due to Hurricane Beryl.” Also, they think that job growth will be better than in July.
Camporeale says that a “nice jobs report” could cause Treasury bond rates to go up and the stock market to rise.
As investors looked over a new report on inflation that mostly met Wall Street’s expectations, all three major U.S. stock markets went up on Friday. The Dow DJIA, the S&P 500 SPX, and the Nasdaq Composite COMP all closed higher. Everything went up in August. The Dow and the S&P 500 both went up for the fourth month in a row.
In August, Treasury yields went down on the bond market because buyers thought the Fed would cut rates.
Dow Jones Market Data says that the yield on the 10-year Treasury note BX:TMUBMUSD10Y went down for the fourth month in a row to 3.910% on Friday. However, it has stayed up all year. In August, the yield on the two-year Treasury note BX:TMUBMUSD02Y fell for the fourth month in a row, the longest streak of drops since July 2020. It ended the month at 3.926%.
Roger Hallam, global head of rates for Vanguard Group, says that the U.S. job market is “not soft” right now, even though it has gotten softer lately.
He told me on the phone that the chances of a bigger rate cut of 0.5 percentage points in September are “relatively low” if the labor market report on Friday comes in worse than expected. But “if we see pretty good economic data,” bond yields “could rise a little bit.”
On the other hand, traders on the federal-funds futures market are putting in that the Fed could cut rates by one percentage point this year, according to the CME FedWatch Tool on Friday.
The man from Camporeale said that was “a little too aggressive.”
He said, “It’s almost like, if that happens, there’s a growth scare that the Fed’s dealing with.” This is similar to how the market became more nervous after the July jobs report was surprisingly weak.
Elliott thinks that “it’s questionable whether the economy needs any cuts” because it’s been doing “pretty good” and asset prices are “pushing all-time highs.” Inflation is still “modestly” above the Fed’s 2% goal, even though rates have been raised.
Since July 2023, the Fed has kept its policy rate between 5.25% and 5.5%. Powell called this level “restrictive” in his Jackson Hole speech and said it had a big impact on lowering inflation in the U.S. economy. Powell said that the Fed does not “welcome” the job market to cool even more because it is “no longer a source of inflationary pressures.”
“The time has come for policy to change,” he also said, which made Camporeale very happy. He said, “I’ve been waiting two years for that Jackson Hole line,” which meant that the Fed was about to change its mind and cut rates.
Camporeale recently increased his exposure to the equal-weight S&P 500 index because he thought breadth would get stronger as the market rallied. This means that he is “overweight” stocks, especially those in the U.S. He said that high-yield corporate bonds, which are not investment-grade but add extra return to the portfolio, are his favorite type of fixed income.
Camporeale said, “The chance of a recession remains low.” “Consumers are still strong, which is good for the economy,” and “inflation data continues to moderate in the right direction.”
Monday is Labor Day, so the stock and bond markets in the United States will be closed.
