Week in Review: September 6, 2024

September 9, 2024

Recap & Commentary

Markets ended the holiday shortened week lower, with the S&P 500 suffering its worst weekly decline since March 2023, as investors fretted over economic data while awaiting the Fed’s upcoming FOMC meeting.

In a scene reminiscent of the start of August, September got off to a rocky start with the S&P 500 falling 2.1% on Tuesday as manufacturing data once again raised concerns about the overall strength of the economy. The August employment report released on Friday, failed to quell those concerns.

This week all eyes will be on the Federal Reserve which is expected to begin cutting interest rates. As of Friday, following the August employment report, market odds for a 0.25% and 0.50% rate cut stood at 70% and 30%, respectively. The question now is whether the cuts will prove to be too little, too late as investors are becoming increasingly nervous about the state of the labor market and what further slowing could mean for the broader economy.

Recent market volatility experienced at the start of August and again this past week raise questions about the near-term direction for markets. With a Fed rate hike already priced into the markets, and 2Q24 earnings season effectively over, broader economic data, in particular labor market data, will likely may play an outsized role in the market’s near-term direction. Uncertainty surrounding the upcoming elections could also serve as a catalyst for periodic bouts of volatility.

Economic Commentary

Nonfarm payrolls added 142K jobs in August, 22K fewer than expected. In addition, July payroll figures were revised down 25K to 89K, continuing the recent trend of downward revisions to prior months’ data. Unemployment which had increased for four consecutive months, fell 0.1% to 4.2%. Average hourly earnings increased 0.4% from July and 3.8% from a year ago. Both figures were higher than expected. The labor force participation rate remained steady at 62.7%, aiding the drop in unemployment.

In a separate report, job openings in July fell to 7.67M, their lowest level since January 2021, providing further evidence of a slowing labor market. The ratio of job openings-to-unemployed individuals slipped to ~1.1X, down from a peak of ~2.0X in March 2022, and slightly below where it stood pre-COVID

Manufacturing activity as measured by industry group ISM, contracted for the fifth consecutive month and for the 21st time in the past 22 months.  However, the pace of contraction slowed from July. Employment also contracted in August, but at a slower rate than in July. New orders, however, fell to their lowest level since May 2023, reflecting a further weakening in demand.  According to ISM, demand remains subdued due to uncertainty surrounding current federal monetary policy and the upcoming elections.

Service sector activity as measured by ISM was essentially inline and unchanged from July’s pace. Hiring remained positive in August, albeit at a slower pace than in July. New orders accelerated during the month, reaching their fastest pace in three months pointing to increased demand.

Of Note

Boeing reached a tentative agreement to prevent 32,000 workers from going on strike.  The deal, which includes a 25% pay hike, will be voted on by union members this week.

Market Indices   (As of 09/06/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Consumer Sentiment
• Weekly Jobless Claims