This was a busy week on Wall Street with big tech earnings, a Fed meeting on Wednesday and a surprisingly weak jobs report on Friday. The Fed had egg on their face with the jobs report as it looks like they missed their chance to cut rates in a prescient manner. And this has been the criticism of the Fed since COVID that they keep missing the mark on timing their policy changes. Most notable was that for the first time since 1993, two governors—Michelle Bowman and Christopher Waller—voted against the hold, recommending a 25-basis-point cut due to labor market concerns.
So, what did Friday’s job report show? Nonfarm payrolls rose by 73,000, well below economist estimates while the unemployment rate nudged up to 4.2%, from 4.1% in June. Not a great report but far from a disaster. However, the big surprise was that May’s payroll growth was revised down from +144K to +19K and June’s went from +147K to +14K for a combined downward revision of 258,000!
As you can see in the chart above, the amount of job creation has been declining for several months so disappointing numbers should not be a shock in this context. Could a recession be on the horizon? Since COVID we have seen a lot of noise in the system from government stimulus checks to rising inflation and then sharp interest rate hikes and now tariffs and a re-set of international supply chains. A lot to consider over the past five years and we may have experienced a recession if it were not for the capital spending surrounding artificial intelligence.
So, what is the next trick? Are we going to keep riding the AI pony? Will the re-set of international trade keep capital investment flowing into the United States? Energy infrastructure building? What other thing can we add to this sandwich of uncertainty that we are all about to take a bite out of?
Fortunately, there remains good liquidity in the system to keep the gears turning which means the Fed will keep providing the grease needed to keep the machine humming. So, more rate cuts are coming this September.
The S&P 500
Stocks have had a good run since the tariff tantrum low back in April of this year at 4838. Since then, there has been little in the way of corrective price action, however, this week’s negative reaction to the weak jobs number may be foreshadowing lower prices. A ‘normal’ retracement of this year’s advance would have us down close to 10%.
Also, we are seeing the momentum indicators begin to roll-over at the bottom of this weekly chart. Notable is that this advance did not register an overbought condition which may mean this advance was not as strong as it may have seemed.
The jobs number is a significant data point for Wall Street as it is tied to consumer spending which drives the economy. I expect that we will have some more downside price action before the summer is over and then we will hear from the Fed on September 17th.
Thank you for being an engaged reader!
President, Kisco Capital
