Friends
This morning’s jobs report was a bit of a mixed bag. Instead of the expected 161,000, we saw 142,000 new jobs created in August. We did see the unemployment rate tick back down to 4.2% as expected and the average hourly earnings number was a little higher than expected. So, what’s the takeaway from all the jobs data we saw this week? It is now certain that the Fed will lower the Fed Funds rate 10 days from now. What is still in question is whether it will be by 25 or 50 basis points.
Now here we are, just like the beginning of last month, in the middle of a stock market decline based on a growth scare. In other words, bad news is really acting as bad news right now. You surely remember, as I have reiterated time and time again this year, that we have thought that the environment has been good for stocks, but that valuations were stretched, especially in the big growth stock area. More recently that environment has gotten “less good” for stocks, and we have pointed that out too. So, it makes sense that the markets are now more sensitive to valuation and what we have been seeing is a revaluation of certain parts of the market. The economy has been showing signs of slowing now for a few months and the labor market is confirming it. Again, we are talking about slowing from a very good level. These jobs numbers would be fine taken as a snapshot, but the trend has definitely been lower. Now we will see how the Fed navigates these choppier waters.
As for today, stocks actually moved higher at the open only to reverse course and spend most of the trading session in negative territory. By the close the Dow Jones Industrial Average was down 410 points to finish the day at 40,345. The S&P 500 was down 94 points to close at 5,408. The Nasdaq Composite Index was down 436 points to close at 16,690. Gold was down $19 to trade at $2,523 per ounce, while oil was down $1.10 to trade at $68.05 per barrel WTI.
I would like to simply declare “don’t fight the Fed” and use the upcoming softening of monetary policy as a flashing green light to buy stocks. I do hold true to that idiom, but the complication here and now is that market participants have been preparing for a Fed loosening for quite some time and share prices might already reflect that. So, the bulls may be more inclined to pick their spots during the Fed softening cycle as opposed to just buying everything all at once. This assumes that the Fed has not already fallen too far behind and subsequently allows the economy to rollover into a recession. As we have said recently, all of this likely portends more volatility ahead. We’ll be here to help explain it all to you as it unfolds. Stay tuned.
Have a great weekend everyone.
