Wall Street snapped a four-day losing streak on Thursday but sentiment remains shaky.
Angela Weiss/AFP via Getty Images
The stock market couldn’t hold on to its earlier gain Friday, after the August jobs report came in roughly in line with expectations. The data indicate that the Federal Reserve could slow down the pace of interest rate hikes soon, but that’s anything but a certainty.
In afternoon trading, the Dow Jones Industrial Average has slipped 228 points, or 0.7%. The S&P 500 has dipped 0.8%, and the Nasdaq Composite has dropped 1.1%. All three indexes were solidly in the green earlier.
First, the good news:
The jobs report “could take some pressure off of them [the Fed] in future meetings, to at least slow the pace of their rate hikes or achieve a level of rates which allows them to pause sooner,” wrote Chris Zaccarelli, chief investment officer at Independent Advisor Alliance
The U.S. economy added 315,000 jobs in August, slightly below expectations of 318,000 and a deceleration from July’s growth of 526,000 payrolls.
The June and July jobs results were revised down by a total of 107,000.
The increase in wages in August was 5.2% year-over-year, below expectations of 5.3%.
These results indicate that inflation is becoming a bit less problematic. Slower wage gains mean that companies have less incentive to raise prices, so consumer inflation could keep slowing down. Plus, fewer people in the workforce means less demand for goods and services.
Markets can now envision a day fairly soon when the Fed slows down the pace of interest rate hikes, which are meant to curb inflation by denting economic demand. Fed Chair Jerome Powell said at the annual Jackson Hole Symposium last Friday that the central bank intends to lift interest rates aggressively, spurring bets of a three-quarter of a percentage point hike at the September meeting, rather than a half-point raise.
While the Fed is still likely to do that, the chances are slightly slimmer. A three-quarter point hike is now at a 58% probability, according to pricing in the fed funds futures market, down from 75% Thursday. Even if the Fed does implement the larger rate hike, markets are now wondering if the Fed will slow down after September.
Consistent with that, the 2-year Treasury yield has risen in the past month to 3.43%, but is a hair below its multi-year high of 3.52%, hit earlier this week. That yield attempts to forecast the level of the fed funds rate a couple years from the present. Not only does the yield represent expectations about Fed rate hikes, but as Treasury yields in general rise, it could force rates on corporate and household bonds higher. That would slow down business and consumer spending.
Therefore, the stock market is pleased to see the yield remain below its high. That’s especially true since the stock market had fallen almost 8% from its mid-August peak for the summer through Thursday.
But there’s still some hesitation in the market Friday. The S&P 500 is still trying to break meaningfully above its 50-day moving average—and for good reason. While the jobs report makes an acceleration in inflation less likely, Wall Street is awaiting the release of the consumer price index on September 13. Economists expect an 8.7% annualized gain for August, which would be in line with the July result, but still below the June result of 9.1%.
So stock traders don’t want to take too much risk when it isn’t yet clear that the Fed could ease up on rate hikes.
“The Fed has somewhat painted itself in the corner by being so aggressive about how long it’s gonna keep rates high,” said Rhys Williams, chief strategist at Spouting Rock Asset Management.
The other factor helping knock the indexes lower was news out of Russia. Citing mechanical problems, Russian energy company Gazprom said it will halt the Nord Stream gas pipeline. That could restrict energy supply, and the price of WTI crude oil is up more than 1%. That’s not what the consumer—or the stock market—wants.
Here are some stocks on the move Friday:
Broadcom (ticker: AVGO) rose 1.7% after the chip maker guided for “solid demand” to continue in its fiscal fourth quarter amid steady spending on infrastructure. The company said it expects fourth-quarter revenue of $8.9 billion, ahead of the $8.77 billion expected by analysts.
Shell (SHEL) was up 1.7% amid news that CEO Ben van Beurden would step down next year, with the board shortlisting four potential successors. Analysts have noted that the CEO’s departure was expected.
Nvidia (NVDA) stock dropped 1.8% after getting downgraded to Neutral from Outperform at Daiwa Securities.
Dow Inc. (DOW) stock fell 1.4% after getting downgraded to Neutral from Overweight at JPMorgan.
Salesforce (CRM) stock gained 0.8% after getting upgraded to Neutral from Sell at Guggenheim.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
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