Trading desks around the country were lightly staffed as the unofficial end of summer came last week. The Labor Day holiday led to some volatile sessions for both stocks and bonds, which both started the week positively on renewed hope that the Federal Reserve (Fed) could be done with their hiking campaign. Lower consumer confidence along with a lower revised 2Q GDP print gave way to the market pricing more of a chance that the Fed would pause from here.
Two important economic releases came out at the end of the week. Personal Consumption Expenditures (PCE), the Fed’s preferred inflation reading, came in as expected but the super core (core services ex housing) actually rebounded, revealing that inflation is stickier than some had hoped. On Friday, the August payroll figure was released showing a still-strong 187K jobs were added during the month but the unemployment rate rose and June numbers were revised downward.
Light volume led U.S. Treasury yields to spike on Friday, contrary to the mixed messaging from the jobs report. The curve steepened as short yields did not jump as much as long yields. Stocks rose Friday after the jobs report and the S&P 500 is now only about 2% from the peak reached at the end of July. As traders return from vacations, the Fed’s September meeting is now fully in view with a pause expected by markets.
A look back
- Global equity markets posted their biggest gains in six weeks, up 2.58%. U.S. and international developed markets led − each higher by over two and a half percent.
- Both the 2-/10-year U.S. Treasury yields were lower last week with the curve steepening by 0.13%.
- Data last week showed some evidence of a cooling labor market with the unemployment rate ticking up 0.3% from a month prior, and hourly earnings increasing at a slower pace.
A look ahead
- Analyst events and brokerage conferences kick into high gear as investors attempt to gain a better understanding of third quarter dynamics ahead of the next earnings season.
- The Fed will release the Beige Book on Wednesday, providing an aggregated view of current economic conditions.
- Economic releases: Durable Goods & Factory Orders, S&P Global U.S. & ISM Services, Unit Labor Costs, Nonfarm Productivity, and Wholesale Inventories.
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