The Dow Jones Industrial Average rose on Friday as traders weighed the latest U.S. jobs report to conclude a winning week.
The 30-stock Dow ticked up 115.80 points, or 0.33%, to close at 34,837.71 The S&P 500 added roughly 0.18% to finish the session at 4,515.77, and the Nasdaq Composite inched down 0.02% to end the day at 14,031.81.
The major averages were up sharply earlier in the day. The Dow briefly traded more than 250 points higher, while the S&P 500 and Nasdaq climbed about 0.8% each before easing.
The Dow and the Nasdaq added 1.4% and about 3.3% for the week, respectively, notching their best performances since July. The S&P 500 gained 2.5% to register its best week since June.
Unemployment rate jumps
The latest U.S. nonfarm payrolls report showed the unemployment rate ticked higher to 3.8% in August, reaching its highest level in more than a year. Economists had expected it to remain at 3.5%.
In another sign of a slowing economy and easing pricing pressures, average hourly earnings increased 4.3% on a year-over-year basis, less than the 4.4% increase expected by economists polled by Dow Jones.
August payrolls grew at a faster-than-expected pace, with 187,000 being added. However, job numbers first reported for June and July were revised down by a combined 110,000.
“It would be a mistake to look at today’s employment report, along with recent data, and say the Fed is done,” said Steve Wyett, chief investment strategist at BOK Financial. “Even though trends in inflation are moving the right direction and a broader view of the employment market would indicate wage pressures should abate, overall economic growth is above trend and inflation remains well above the Fed’s recently confirmed 2% target.”
Following the release, the CME Group’s FedWatch tool showed traders have priced in a 93% chance of the central bank holding rates at current levels at its policy meeting later this month.
Investors also pored over fresh earnings reports. Database software maker MongoDB and Dell Technologies advanced 3% and 21%, respectively, on the back of stronger-than-expected earnings reports. Shares of athletic apparel retailer Lululemon Athletica added 6% after crushing Wall Street’s estimates.
Filip De Mott of Business Insider also reports US stocks rise as jobs data dampens fears of a tighter Fed:
US stocks climbed Friday as the latest jobs report data diminished concerns of more interest rate hikes from the Federal Reserve.
Nonfarm payrolls climbed 187,000 in August, topping expectations. But wage growth was subdued, the unemployment rate rose to 3.8% from 3.5%, and job gains from prior months were revised lower. They added to earlier indications of a cooler labor market.
"The Fed couldn't hope for a better report in their fight against inflation," Chief Investment Officer for Independent Advisor Alliance Chris Zaccarelli said in a statement, adding: "If the economy can continue to expand and the labor market can cool at a slow pace, rather than at a rapid clip, then the Fed can afford to leave rates where they are and patiently wait for (current) higher rates to do their work."
After the jobs report, the odds on Wall Street for a Fed rate hike this month and later this year dropped.
Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Friday:
S&P 500: 4,536.63, up 0.64%
Dow Jones Industrial Average: 34,947.82, up 0.65% (225.91 points)
Nasdaq Composite: 14,127.44, up 0.66%
Here's what else is going on:
Private-equity deals in entertainment are headed for a five year low.
UBS made a $29 billion quarterly profit after acquiring Credit Suisse.
To prop up the yuan, China's central bank is slashing foreign currency deposit requirements.
Dollarization is Argentina's only option against the economic "death spiral," Steve Hanke said.
In commodities, bonds, and crypto:
Oil prices gained. West Texas Intermediate climbed 0.97% to $84.27 a barrel. Brent crude, the international benchmark, was up 1.38% to $87.64 a barrel.
Gold fell 0.9% to $1,949.55 per ounce.
The 10-year yield declined 1.6 basis points to 4.075%.
Bitcoin dropped 0.81% to $26,037.45.
Alright, it's Friday, a long weekend awaits us so let me get to it.
Let's begin with analysis and reaction to the US jobs report:
Jobs report largely consistent with a continued moderation of the economy but with some strange wrinkles:
— Jason Furman (@jasonfurman) September 1, 2023
--187K jobs added, while June/July revised down by 110K
--Unemployment rate rises to 3.8% but labor participation rises
--Hours up
--Wage growth moderated pic.twitter.com/mCsSzkW705
Employment growth in June and July was revised down by a combined 110,000 jobs. This is a large negative revision relative to the experience in the last business cycle over 2008 to 2020. 3/ pic.twitter.com/1qJT72XiZd
— Council of Economic Advisers (@WhiteHouseCEA) September 1, 2023
US Labor Force Participation Rate moved up to 62.8% in August, highest since February 2020. Participation Rate among prime-age workers (25 to 54) is at 83.5%, highest since May 2002. pic.twitter.com/Uo4AdHgD3D
— Charlie Bilello (@charliebilello) September 1, 2023
Prime-age labor force participation rate moved back up to 83.5% in August … continues to hover near a two-decade high pic.twitter.com/nbNxnMIJTO
— Liz Ann Sonders (@LizAnnSonders) September 1, 2023
This is the really good news about the labor market. People are coming back into the labor force. Looks like ongoing rebalancing. It has been a slow process with a lot of ups and downs. https://t.co/8ubiZfzpH1
— Kathy Jones (@KathyJones) September 1, 2023
While employment day gets all the focus, the data already out is showing signs of weakening. Trouble is wages aren’t slowing fast enough.
— Bob Elliott (@BobEUnlimited) September 1, 2023
Challenger, adp, claims, and jolts are all breaking a bit weaker. First, timely claims data has been softening adjusting for seasonality: https://t.co/6gHyROJCvW
Temp agency jobs down in each of the past 7 months by a cumulative -119k. We’ve never seen this before without the economy heading into recession. After all, when the headhunters are chopping off their own heads, what does that mean for the rest of us?
— David Rosenberg (@EconguyRosie) September 1, 2023
August update of my favorite leading indicator 👇If history is a guide the no landing narrative will get challenged fairly soon. pic.twitter.com/TZEIO7ZN7p
— Michael A. Arouet (@MichaelAArouet) September 1, 2023
I thought this was the highlight of this morning's employment report. The number of workers employed at temp agencies gives you a sense of what comes next for labor markets, and it paints a changing picture of the employment landscape in the coming quarters. pic.twitter.com/0C4H9DRveT
— Francois Trahan (@FrancoisTrahan) September 1, 2023
My take? Clearly the US economy is just starting to moderate and we are in the early innings of a long and nasty recession. This will not end well:
This is THE tightest US monetary policy seen since the 1980s
— Game of Trades (@GameofTrades_) September 1, 2023
Buckle up pic.twitter.com/WtR6ZMRzJp
The housing market has deteriorated significantly
— Game of Trades (@GameofTrades_) September 1, 2023
Buying conditions are at levels only seen 2 times since 1960
Both instances saw severe recessions pic.twitter.com/tOouqEeGl3
Leading economic indicators have declined for 16 straight reports. This is exceeded only by 1973-1975 and by 2007-2009, when it fell 22 times in a row and 24 times in a row, respectively. pic.twitter.com/w1Tsib6tDu
— Jeff Weniger (@JeffWeniger) September 1, 2023
August ISM Manufacturing up to 47.6 vs. 47 est. & 46.4 prior … new orders (white) fell to 46.8 vs. 47.3 prior; production back up to 50; prices paid still contracting but at highest since April … employment improved but also still contracting pic.twitter.com/4QqJEliAlj
— Liz Ann Sonders (@LizAnnSonders) September 1, 2023
JPMORGAN: “We think the ‘excess saving’ that had been amassed early on the pandemic has dropped significantly .. peaked at around $2.3tr and has come down to about $0.7tr since then. .. likely will continue to be drawn down over time.” pic.twitter.com/NN7xANeXUw
— Carl Quintanilla (@carlquintanilla) August 31, 2023
Going to keep a close eye on this one. FT pic.twitter.com/hVAscejvEh
— Francois Trahan (@FrancoisTrahan) September 1, 2023
As far as the Fed, it may raise rates once more in September but I doubt it as it knows the lagged effects of all its rate hikes are just kicking in.
So, with the US economy slowing, where does that leave stocks?
Well, as usual, all over the place depending on who you talk to:
The S&P 500 is about to take off on a month-long rally that will retest its 2023 high of 4,607 says Fundstrat's Tom Lee pic.twitter.com/dKuvA1rGkQ
— Barchart (@Barchart) August 31, 2023
Why the S&P 500 could rally another 11% by year-end, according to a Morgan Stanley senior portfolio managerhttps://t.co/SC22NjxZD9
— Leo Kolivakis (@PensionPulse) August 31, 2023
US Stocks Still Face Hard Landing Risks, Bank of America Says https://t.co/iqeksvc6U7 via @YahooFinance
— Leo Kolivakis (@PensionPulse) September 1, 2023
I think the more interesting aspect is what is happening in the bond market:
This chart is something investors should keep a close eye on
— Game of Trades (@GameofTrades_) August 31, 2023
The 10-year Treasury yield has broken out of its long-term downtrend
Driven by inflationary pressures in 2022/23 pic.twitter.com/5VwBQ0dano
Never in the history of the US republic have US Treasury returns fallen 3 years in a row - BoFA
— Ayesha Tariq, CFA (@AyeshaTariq) September 1, 2023
👀 pic.twitter.com/JFXzFnxBQW
BlackRock’s Rieder Says ‘Put Your Shoulder’ Into Bonds as Fed Rate Risk Recedes https://t.co/ClWz3afGKb via @YahooFinance
— Leo Kolivakis (@PensionPulse) September 1, 2023
On this topic of bonds, Martin Roberge of Canaccord Genuity wrote an interesting weekly comment asking whether the bond market remains hostage to Japan and China:
Our focus this week is on the US bond market where gyrations over the past two years go beyond US growth and inflation pulses. Indeed, since January 2022, our Chart of the Week shows that there has been a strong correlation with the USD/JPY and USD/CNY exchange rates vis-à-vis US 10-year Treasury yields. As such, we believe the marked depreciation of the Japanese Yen and Chinese Yuan may have forced the BoJ and the PBoC to accelerate sales of their US bond holdings in order to protect their currencies. In fact, TIC data (not shown) that measure major foreign holdings of Treasury Securities corroborate our hunch with Japan and China, the biggest holders of US Treasuries, having sold for about $400B combined worth of US Treasury bonds since 2022. While the PBoC sells US$ and buys Yuan to offset capital outflows, the BoJ sells US$ and buy Yen to curb import price inflation and manage the expansion of its yield curve control (YCC). That said, with the USD/JPY 150 and USD/CNY 7.30 resistances coming into play, we believe these two central banks are determined to protect these levels which should then allow bond yields to recouple with slowing global growth/inflation momentum. However, should we be wrong and these resistances are broken, this would likely set in motion an important steepening of the bond yields curve, with the short end anchored down due to slowing economic growth.
Interestingly, hedge funds continue to short Treasuries and are increasing their short positions:
Hedge Funds continue to short treasuries at historic levels and have increased their short position on 10-year note futures to more than 6 million contracts, the largest since AT LEAST 2016 pic.twitter.com/d10UeVwUtf
— Barchart (@Barchart) August 30, 2023
Ironically, hedge funds are also loaded up to the hilt on tech stocks:
The average hedge fund exposure to the Magnificent 7 is roughly 20%, the highest level EVER RECORDED according to data from Goldman Sachs pic.twitter.com/hfWoESxwAA
— Barchart (@Barchart) August 29, 2023
The average hedge fund exposure to the Magnificent 7 is roughly 20%, the highest level EVER RECORDED according to data from Goldman Sachs pic.twitter.com/hfWoESxwAA
— Barchart (@Barchart) August 29, 2023
And this at a time when global buybacks are near record levels and US profits are decelerating fast:
Global stock buybacks hit 29%, approaching the highest level EVER RECORDED shortly after the Dot Com bubble burst pic.twitter.com/sQjhNnEnoc
— Barchart (@Barchart) August 30, 2023
Corporate profits contracted by 6.5% year/year in 2Q23 … acceleration to downside from prior quarter’s 1.8% decline; worst drop since pandemic pic.twitter.com/VoC9sXmzIQ
— Liz Ann Sonders (@LizAnnSonders) August 30, 2023
All I know is these markets are tough to call and even the best strategists are being beaten by these three indicators this year:
Three indicators that are beating major Wall St. strategists — and how to read them https://t.co/mG1iqjqpHT
— Leo Kolivakis (@PensionPulse) August 30, 2023
Alright, let me wrap it up there and wish everyone a nice long weekend.
Below, CNBC's Rick Santelli joins 'Squawk Box' to break down the August jobs report.
Second, Roger Ferguson, former Federal Reserve vice chairman, joins 'Squawk Box' to discuss the August jobs report, the impact on the Fed's rate hike campaign, and more.
Third, Frances Donald, Manulife Investment Management global chief economist, and CNBC's Steve Liesman join 'The Exchange' to discuss what the August jobs report signals about the economy, whether we are heading into a recession, and more.
Fourth, Rick Rieder, CIO of global fixed income at BlackRock, says it’s time to get behind more interest rate exposure than over the last few months as “the Fed should be done.” He speaks with Alix Steel on "Bloomberg The Open."
Fifth, Ed Yardeni, Yardeni Research president, joins 'Squawk Box' to discuss the latest market trends, the August jobs report, the Fed's rate hike campaign, and more.
Lastly, David Rosenberg, Rosenberg Research, joins 'Fast Money' to talk the U.S. economy, the impact of interest rates, slowing employment growth and more.