Wall Street’s tough August ends with jobs in sight
Stocks churned at the end of a challenging month, with traders parsing mixed economic data and awaiting a key jobs reading to gauge the outlook for Federal Reserve policy. Bond yields fell. The dollar rose.
The S&P 500 finished with a small loss on Thursday, while notching its first monthly slide since February.
Aside from profit taking after this year’s rally, traders cited the view that the Fed will keep interest rates higher for longer to prevent a flare-up in price pressures.
The Fed’s preferred measure of underlying inflation saw the smallest back-to-back increases since late 2020, encouraging consumer spending.
Markets took the report in stride, with the numbers illustrating the divergence within the U.S. economy, according to Jeffrey Roach at LPL Financial.
Wall Street is now bracing for Friday’s labor-market data, which will provide further insights on the Fed’s next steps.
The report is forecast to show employers boosted their payrolls by nearly 170,000 in August, while the unemployment rate held at a historic low of 3.5%.
“Given the continued strength in the labor market and the fact that the economy is still growing above trend, the Fed will view inflation as cooling, but not sufficiently cool,” said George Mateyo, chief investment officer at Key Private Bank.
More than 60% of investors surveyed by 22V Research expect softer-than-estimated August payrolls data, while 78% see wage inflation at or below consensus. Meantime, 49% of them said the report will be “risk-on” and only 24% expect a “risk-off” reaction.
The Fed may be slower to cut rates than many market participants expect, said Bridgewater Associates Co-Chief Investment Officer Karen Karniol-Tambour.
“When you look at what it takes to get fast rate declines, usually you need the economy collapsing pretty quickly,” she said in an interview for an upcoming episode of Bloomberg Wealth with David Rubenstein. “That’s very far from where we are today.”
Swap markets placed roughly even odds the Fed will boost rates in November by a quarter point.