Previous Job Growth Estimates Revised Lower

Photo Credit: Zoshua Colah, Unsplash

Weekly Market Recap for August 23rd

This week, stocks traded higher early this week before giving back some gains on Thursday. It has been an impressive recovery in the equity market after the early-August volatility, with the S&P 500 less than -2% below its July 16th all-time high. This week’s gains were small with limited return dispersion, but a minor rotation was underneath the surface. This year’s laggards, the Russell 2000, the S&P 500 Equal Weight, and the Value factor produced slight outperformance. There was also limited dispersion at the sector level, but Technology’s underperformance added to the rotation feel. Bonds produced minor gains as yields declined early in the week but traded lower on Thursday as yields jumped. The U.S. dollar continued to weaken due to expectations for a rate cut and slower economic growth, and oil fell by over -5% to trade near its 2024 lows.

Oil Trades Down to 2024 Lows

S&P 500 Index (Last 12 Months)

S&P 500 Technical Composite (Last 24 Months)

Job Growth Estimates Revised Lower

This week, the Labor Department reported that the U.S. added -818,000 fewer jobs than initially estimated between April 2023 and March 2024. The negative revision was large but expected and aligns with the recent rise in unemployment. After the revisions, average monthly payroll growth was closer to +174,000, compared to +242,000 before. Professional & Business (-358,000) had the most significant negative revision, followed by Leisure/Hospitality (-150,000), Retail Trade (-129,000), and Manufacturing (-115,000). The negative revisions provide additional evidence that the labor market is softening. However, the revised +174,000 monthly job growth is still solid by historical standards. The negative revisions and the recent rise in unemployment provide the Fed with enough data to begin cutting interest rates at its mid-September FOMC meeting.

Nonfarm Payroll Estimate Revised Lower by -818,000

Job Revisions Across Industries

Jackson Hole

Fed Chair Jerome Powell speaks today at the annual Jackson Hole conference. His message will have to be well-calibrated. The market expects a September rate cut with more later this year, but it doesn't want to hear that officials are concerned about the late. We expect Powell to shift the focus from inflation to the labor market without committing to a specific path. The question for September is not whether the Fed will cut but by how much. Minutes from the July FOMC meeting released this week showed members were already debating whether to start cutting last month. Our view is that normalization cuts are appropriate given the recent rise in unemployment, but the significant cuts seen around the 2008 recession and the COVID pandemic are not necessary.

Retail Industry Earnings

Multiple retailers recently reported earnings, highlighting consumer resilience despite high prices. Target beat estimates and reported a +2% increase in sales at stores open at least one year. The retailer saw meaningful improvement in discretionary spending on items like apparel and beauty but remained cautious. This followed Walmart last week, which beat estimates and raised its outlook. The reports show consumers remain willing to spend with an emphasis on value. However, concerns remain about the consumer. Home Depot, McDonald’s, and Disney have warned about weakening consumer spending, and the cumulative effect of inflation continues to impact consumers. Last week’s August Strategy Snapshot discussed the consumer in our US Consumer Health Indicator (USCHI) context. The consumer is losing certain pandemicera tailwinds, like a tight labor market and strong wage growth. Still, the retailers’ earnings reports and positive July retail sales data indicate that the consumer remains stable.

Look Ahead to Next Week

Next week, the calendar is quiet as the Labor Day weekend approaches. Economic releases include durable goods orders on Monday, home prices on Wednesday, the second estimate for Q2 GDP on Thursday, and University of Michigan sentiment on Friday. Q2 earnings season is almost over, with only a few companies left to report, but none are expected to impact the market significantly. This week's economic data releases included:

Initial Jobless Claims
Actual: 232k
Consensus: 231k
Prior: 228k
Commentary: Weekly claims rose after dropping from a 12-month late-July high; a lot of attention is on claims right now as investors search for labor market clues, but the big takeaway is that claims remain very low by historical standards.

Housing Starts
Actual: 1,238k
Consensus: 1,350k
Prior: 1,329k
Commentary: Dropped to lowest level since May 2020; decline led by single-family, which fell to March 2023 level; multi-family rose to highest level since February 2024; housing continues to feel the impact of higher rates.

Building Permits
Actual: 1,396k
Consensus: 1,428k
Prior: 1,454k
Commentary: Fell by -4% compared to prior month; Single-family fell to lowest level since May 2023, while multifamily dropped -11% after surging in June; fewer permits signals less construction activity in pipeline.

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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