For two years, a weak jobs number was the best news a stock investor could get. It meant cuts were coming. This week the sign flipped: soft labour data rallied the market because it took a rate hike off the table, and the strong number is now the one to fear. That is why we built Winvesta Crisps, to cut through the noise and tell you what actually moved markets and why. 60,000+ investors from all over India are already in. What about you?
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Last Friday, Kevin Warsh stood up at Jackson Hole and argued that the Fed should look at trends rather than "isolated data points", and that underlying inflation had not "meaningfully improved", per CNBC. Before that speech, the market gave roughly 70% odds that the Fed does nothing on 16 September. By this week, a quarter point hike was close to a coin flip.
That single repricing explains all four sessions. Stocks fell Monday and Tuesday as oil and bond yields did the hawkish work for him. Then two Fed officials spent Wednesday and Thursday quietly walking the hike back, and the market took both days with both hands.
Which leaves the whole week hanging on one number. The August jobs report lands at 8.30am New York time on Friday, which is 6pm in India, after this piece reaches you. Consensus is around 55,000 new jobs with unemployment ticking up to 4.2%, per MarketWise and TOPONE Markets. In a normal year you would want that number to be strong. This year, you want it soft.
📊 Market recap
The week ran in two halves: two sessions where the macro won, and two where the Fed talked it back.
Start with where things stand. Through Thursday's close, the S&P 500 sat at 7,747.71, the Nasdaq Composite at 26,584.06 and the Dow Jones Industrial Average at 53,686.11, per CNBC and market data. Measured against last Friday's close, that leaves the S&P in the mid-7,700s and up roughly half a per cent on the week, the Nasdaq in the mid-26,000s and up around 0.7%, and the Dow in the mid-53,000s and barely changed. A quiet weekly scoreboard hiding a very loud four days.
Monday reopened the war trade. The United States and Iran traded fire for the first time in a month, per CNBC, and equities gave up ground into the last session of August. The S&P 500 fell 0.33% to 7,686.14, the Nasdaq slipped 0.12% to 26,370.89, and the Dow dropped 374.09 points, or about 0.7%, to 53,185.90. Energy was the only S&P 500 sector to finish green. Note what still held: all three indices closed out August with a monthly gain regardless.
Tuesday was the bond market's day, and it was ugly. Fresh US strikes on Iranian targets near the Strait of Hormuz sent crude vertical. WTI jumped 5.2% to $90.22 a barrel, its first close above $90 in more than a month, and Brent rose 4.6% to $94.65, per Investrade and Yahoo Finance. Tehran announced a military response. A global bond sell-off ran alongside it, pushing the US 10-year yield to about 4.79% and the 30-year to roughly 5.27%. Equities had nowhere to hide: the S&P 500 fell 0.71% to 7,631.47, the Nasdaq lost 1.03% to 26,099.77, the Dow shed 0.79% to 52,766.88, and the Russell 2000 dropped 1.23%, with Nvidia and Amazon the heaviest weights. Higher oil feeds headline inflation, higher inflation feeds hike odds, and this week those stopped being separate stories.
Wednesday, a Fed official picked up a fire extinguisher. New York Fed president John Williams said there were "no clear signs" that a September hike was necessary, per market reports, and the three day slide stopped dead. The S&P 500 rose 0.46% to 7,666.60, the Dow added 295.07 points to 53,061.95, and the Nasdaq gained 0.45% to 26,217.83. Nine of eleven sectors finished higher and roughly 60% of the index advanced, so this was breadth rather than a two stock rescue. Nvidia rose 3.3%. The day's labour data helped in the new, inverted way: ADP showed private payrolls adding just 38,000 jobs in August against expectations near 47,000, the weakest reading since January. Two years ago that print sinks the market. This week it was a relief.
Thursday, another one did it again, harder. Fed governor Waller signalled he was willing to "sit and be patient" and said he expected inflation to moderate, per Investrade, and the market ran. The S&P 500 climbed 1.06% to 7,747.71, the Nasdaq added 1.40% to 26,584.06, and the Dow rose 624.16 points, or 1.18%, to 53,686.11, led by Goldman Sachs at about +3.4%. The 10-year eased to roughly 4.77%. The data was solid rather than scary: ISM services at 55.4 against a 54.2 consensus, jobless claims at 206,000, and a July trade deficit that widened 24.4% to $88.6 billion. Gold did something worth noticing, rising 2.84% to about $4,539.90 an ounce on the same day equities rallied hard. Not every buyer believes this is settled.
Friday has not happened yet. US futures and the entire week's verdict are sitting on the 8.30am payrolls print, which arrives after this article does. The S&P 500 is trading roughly 2% below its all time high with a Fed decision twelve days away.