This morning, the highly anticipated jobs report was released…
I woke up early to get my first look at the monthly number. As I’ve discussed lately, this report could be an important catalyst leading up to the next Federal Reserve meeting on September 18.
And it didn’t disappoint…
Stocks were down heading into the release and were on track for their worst week since April 2024.
Then, the report was published. The U.S. added 142,000 jobs in August, which was lower than expected, but is still the best number we’ve seen since May. Estimates were for 160,000 new jobs. The last two months also saw a revision low by a total of 86,000 jobs.
As you can see, it’s clear the jobs market has continued to cool off in recent months. The Fed is now at a point where it can feel comfortable lowering interest rates at its next meeting.
But the biggest question still stands… Will the Fed go with a standard 25 basis points (0.25%) rate cut or be aggressive with a 50 basis point (50%) cut?
As of this morning, the market is pricing in a 37% chance of a 50 basis point cut, which is lower than yesterday’s estimate. But after looking at the numbers in the report, I believe the Fed will be more aggressive. That puts me in the minority, according to the odds on CME Group’s FedWatch Tool.
The market’s initial reaction was expected… Stocks rallied off their lows and all three major indexes were in the green in the opening minutes.
But that didn’t last long… Tech stocks led the market lower and the Nasdaq was down more than 1% within 30 minutes of the opening bell.
I believe two potential scenarios are at work that could explain why investors are feeling cautious today…
First, some folks may be concerned that the economy could be on the verge of a recession. The jobs number has been revised down the last two months and once again fell below expectations. But I don’t see a recession as a likely outcome at this point.
The second scenario is the exact opposite… The Fed could see continued strength in the labor market, which could cause the central bank to take a slow, timid approach to lowering interest rates.
Some investors may see that as bad news for stocks. Elsewhere, the hourly wages number was better than expected – up 0.4%. This may be a number that could cause some worry about inflation being sticky.
So it was a mixed bag of news today. But I’ve warned that volatility will remain high for the next two weeks. Plus, with September being a historically bearish month, it’s the perfect storm for a market pullback.
And it’s also the perfect time to buy any weakness.
I’m not ready to be aggressive yet with new buy recommendations. Patience will be key here.
But you can bet that I’m working diligently behind the scenes to finetune our watch list for when the time is right to pounce.
Here’s to the future,
Matt McCallEditor, Market Insights
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