Weekend Update: BLS Jobs – You’re Fired

Index, Sector & Asset Performance

On the back of weaker economic data, a dovish speech from Federal Reserve Chairman Jerome Powell last week, short covering, and a bit of FOMO (fear of missing out), the markets rallied strongly last week to close at a weekly closing all-time high near 5635 cash S&P500 index. The S&P 500 added +1.5% and Nasdaq +1.4% while foreign markets were stronger as well. On the back of a weaker US dollar, materials rose +2.1% and industrials gained +1.8%. Financials jumped +1.6%) and only consumer staples and energy were down on the week.

The week closed strongly on Friday with the Dow Jones Industrial Average gaining 462 points, or +1.1%, to close at 41,175. The S&P 500 rose 63.97 points, or +1.1%, to finish at 5,634. The Nasdaq Composite gained 258 points, or +1.5%, to end at 17,877. The Dow ended just 0.1% below its record closing high on July 17. The S&P 500 finished just 0.6% below its daily all-time closing high on July 16. For the week, the Dow advanced +1.3% while the S&P 500 and technology-heavy Nasdaq each increased +1.4%. All three major U.S. stock indexes had back-to-back weekly gains.

Both the 10-year and 2-year Treasury yields fell last week to 3.8% and 3.9% respectively. Mortgage rates also fell sharply stimulating housing related equity names. Spot volatility while having surged in early August with the CBOE Volatility Index, or spot VIX, hitting 29.66 on Friday 2 weeks ago, it has now retreated back to 15.5.

Economic Indicators and Earnings Commentary

In a dovish speech at the Fed’s Jackson Hole conference last week, Chair Jerome Powell signaled that a rate cut is coming at the September meeting. He stated “the time has come for policy to adjust.” While Powell did not clarify the size of the cut, he did say that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risk”. He also punctuated the need to do what is necessary to keep a strong job market. This point has been understated by most over the weekend and leaves the door wide open for a 50bps cut in September given the massive downward revision to the BLS jobs data. (Not unexpected by the OHFG investment team. See our video from seven months ago.)

The preliminary estimate of the benchmark revision indicates an adjustment to March 2024 total nonfarm employment was -818,000 previously guessed at jobs disappeared. The revision was mostly due to the highest-paying sectors, professional services -358k, leisure -150k, and manufacturing -115k. Government jobs were the only area revised up +1,000.

Global Market Trends/Commodities/Currencies

Per Goldman Sachs, in the US, the S&P 500 closed the week +1.47% higher as commentary from monetary policymakers pointed to a September rate cut. In the Euro area, the STOXX 600 gained +1.32% as activity data registered in line with consensus expectations. In Asia, the TOPIX continued to recover losses earlier in the month, gaining +0.23% on the week.

The economic slowdown in China continues to hobble most commodities. Gold hit a new all-time high last week on the back of dovish Fed comments and continued foreign central bank buying. Oil has rallied recently on the back of a weaker dollar and continued Middle East tension. However, WTI and Brent crude closed the week lower at $74.83 and $79.02/bbl, respectively. Meanwhile, the price of gold reached closed at $2546.30/troy oz.

The US dollar weakened against other currencies last week as a large revision to job gains prompted further expectations of a Federal Reserve rate cut in September. The US dollar index declined by –1.83%. The euro strengthened against the greenback to its highest level since July 2023…

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