Stocks ended the short, brutal week with widespread losses. The S&P 500 (SPX) tumbled 4.25% , marking its worst week since the regional banking crisis in March 2023. The Dow Jones Industrial Average (DJIA) fell by 2.93%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) lost 5.77% and 5.89%, respectively, with the latter registering its worst week since 2022.
Last week was all about the deteriorating job market. The JOLTS data showed July’s job openings fell to their lowest since the start of 2021; the ADP data reflected the slowest pace of private job growth since 2021 as well. In addition, Friday’s report showed that payrolls rose at a much slower rate than was anticipated, although this still represented an increase from a sharply revised July figure.
The apparent cooling of the labor market was the main source of anxiety. There was a sharp increase in speculations that the Fed could be behind the curve as it performs its widely anticipated policy easing this month, with many calling for a 0.5% cut.
On the other hand, different parts of the jobs report reflected continued strength, maintaining hopes for a soft landing. Thus, the unemployment rate ticked down to 4.2% from July’s 4.3%. In addition, average weekly hours rose as expected, while average wages increased above expectations. On the whole, the latest reports confirmed a softening job market, which supports rate cut expectations, though not enough to strongly imply a 50bps rate reduction.
On the other hand, the Federal Reserve rate committee doesn’t meet in October, leaving a large gap between the September and November meetings. This does not leave sufficient time for the Fed to respond if there is a further deterioration in labor conditions. Thus, the policymakers face a tough decision: to reduce rates by 0.25% and risk a stalling job market and a recession, or by 0.50% and risk rekindling inflation.
Three Economic Events
Here are three economic events that could affect your portfolio this week. For a full listing of additional economic events, check out the TipRanks Economic Calendar.
» August’s CPI and CPI ex. Food and Energy (Core CPI) – Wednesday, 09/11 – The CPI report is one of the two key indicators used to measure inflation (the second one is the Personal Consumption Expenditures, or PCE). Policymakers, businesses, and consumers closely watch the CPI report, as it reflects the price trends in the economy, shapes consumer spending and business outlook, and directly affects the Federal Reserve’s policy rate decisions.
» August’s Producer Price Index (PPI) – Thursday, 09/12 – This report reflects input prices for producers and manufacturers. Since PPI measures the costs of producing consumer goods – directly affecting retail pricing – PPI is seen as a telling pre-indicator of inflationary pressures. This makes it a leading indicator for the following month’s CPI. Thus, the PPI directly impacts the overall inflation outlook among policymakers.
» September’s Michigan Consumer Sentiment Index and UoM 5-year Consumer Inflation Expectations (preliminary readings) – Friday, 09/13 – These reports portray the results of a monthly survey of consumer confidence levels and consumers’ views of long-term inflation in the United States. The level of confidence affects consumer spending, which contributes about 70% of the U.S. GDP. The inflation expectations index is used as a component of the Fed’s Index of Inflation Expectations calculations.
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