After Positive Reaction to Powell Speech, Market Faces Host of Jobs, Inflation Data This Week

Stocks start the week with spillover support from Powell's speech last Friday, but there's a gauntlet of jobs and inflation data ahead in coming days. Yields remain near recent highs and so does the dollar, either or both of which could pose a threat to any budding rally.
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Key Takeaways

  • Busy week ahead to wrap up August features inflation and jobs data with potential rate implications

  • Stocks up early, but strong dollar, firm yields suggest final week of month could remain tough for bulls 

  • Earnings pick up steam as week advances with Best Buy, Salesforce, and Broadcom all on tap

(Monday market open) What do you get when you cross a hawk with a dove? The answer might be Jerome Powell.

The Federal Reserve Chair’s much-anticipated address last Friday at the Jackson Hole Economic Symposium seemed like it had something for everyone. Some of his comments leaned hawkish, as he noted the economy was “not cooling as expected,” even with the Fed’s benchmark funds rate at a 22-year high. Other remarks sounded more dovish, or at least less hawkish, as Powell said the central bank will “proceed carefully” as it studies fresh economic data.

“So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust,” Powell said Friday. “In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up.”

Whatever the case, the market appeared to like what it heard, with the major U.S. benchmarks posting firm gains Friday and breaking a three-week losing streak as Powell’s comments seemed to ease investor concern that further rate hikes may be coming. The S&P 500 index (SPX) and the Nasdaq (COMP) gained 0.8% and 2.3%, respectively. Short-term Treasury yields climbed and the dollar strengthened, likely reflecting expectations that U.S. interest rates will remain elevated for some time to come.

Investors move on this week to a busy slate of economic news, including an update to second-quarter Gross Domestic Product (GDP) on Wednesday and the Employment Situation report Friday. Inflation takes the spotlight Thursday morning—the final day of August—with July Personal Consumption Expenditure (PCE) prices, a gauge closely watched by the Fed.

Morning rush

  • The 10-year Treasury note yield (TNX) was unchanged at 4.24%, but down from recent peaks.
  • The U.S. Dollar Index ($DXY) was steady at 104.12.
  • Cboe Volatility Index® (VIX) futures were down slightly at 16.02.
  • WTI Crude Oil (/CL) futures were near steady at $79.79 per barrel.

Stocks in spotlight

Earnings are sparse to begin the week but keep an eye on a few important companies reporting in coming days, including Best Buy (BBY), Salesforce (CRM), and Broadcom (AVGO), due tomorrow, Wednesday, and Thursday, in that order.

Best Buy’s results follow several recent retail earnings reports suggesting cautious consumers, while the Salesforce and Broadcom updates could provide a bit more insight into corporate demand for technology, including artificial intelligence (AI).

One interesting note from last week related to earnings: Chip firm Nvidia (NVDA) reported a blow-out quarter and delivered strong guidance, but the stock ran into selling after an initial bump on the news. This could be informative for anyone watching this week’s earnings crop, suggesting that investors appear unwilling to reward companies for positive tidings.

What to watch

While there aren’t any significant economic reports Monday, the calendar becomes increasingly busy starting Tuesday with the expected release of Consumer Confidence for August, the S&P Case-Shiller Home Price Index for June and the Labor Department’s Job Openings and Labor Turnover Summary (JOLTS) for July. Wednesday brings the government’s second estimate for second-quarter GDP, and on Thursday, Personal Consumption Expenditures Price Index (PCE) prices.

JOLTS numbers, similar to trends in the monthly Employment Situation reports, have shown signs of an easing labor market. In June, the number of job openings per unemployed person rose to 1.61, up from 1.58 in May. Hires during June fell 326,000 to 5.9 million. Still, the JOLTS report indicated labor conditions remained tight, with layoffs declining for a third consecutive month.

The PCE, the Fed’s preferred inflation measure, will likely be one of the more closely studied numbers this week. In June, the overall PCE index slowed to a year-over-year increase of 3% from 3.8% in May. Core PCE, which excludes food and energy prices, fell to an annual rate of 4.1% from 4.6% the month before. The core rate had been holding at 4.6% to 4.7% earlier in the year but has slipped recently.

It all builds up to Friday’s Nonfarm Payrolls data. Analysts expect the report to show August jobs growth of 170,000, according to Trading Economics, which would represent the lowest monthly gain since December 2020. However, the government has made significant revisions to recent monthly headline numbers, so it wouldn’t be surprising to get a low number on Friday and then see it revised upward a month later.

Eye on the Fed

The Fed is widely expected to keep its benchmark funds rate unchanged for at least another month. As of this morning, the probability that the Federal Open Market Committee (FOMC), the Fed’s policy-setting arm, will maintain current rates after its September 19–20 meeting is near 78%, down from 86% a week ago, according to the CME FedWatch Tool.

Traders are less certain about what the Fed may do beyond September, in part because recent economic data suggest the economy is still growing despite short-term interest rates reaching 22-year highs. Expectations that the funds rate would remain at its current 5.25%–5.50% target range after the FOMC meeting in November were about 58%, compared to 43% a week ago, based on the CME FedWatch Tool.

CHART OF THE DAY: FEAR NOT? The Cboe Volatility Index (VIX), aka the “fear gauge,” has been trading within 2021 levels after dropping to two-year lows over the summer. Extreme lows on the VIX are often viewed as a sign of complacency that contrarian investors may interpret as a bearish signal. Stated another way, “when the VIX is low, it’s time to go.” However, if the VIX stays within its 2021 range, it could be viewed as an “appropriate” level of caution. The 20 level on the VIX is considered the unofficial bearish resistance level. If the VIX closes above 20, it could signal tough times for stocks. Data sources: ICE, S&P Dow Jones Indices. Chart source: thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Walmart takes a winger: Walmart (WMT), the largest U.S. retailer, and Wing, a subsidiary of Google parent company Alphabet (GOOGL), announced last week they are teaming to offer drone delivery from two stores in the Dallas-Fort Worth area this year, Industry Dive reports. Wing drones can provide deliveries in under 30 minutes and use a tether to deliver items like household essentials and groceries to customers’ homes. The deal with Wing will allow Walmart’s growing drone coverage to reach an additional 60,000 homes and spur more delivery activity, according to the report. Earlier this month, Walmart said it surpassed 10,000 drone deliveries since it began piloting the program in 2020, with 36 stores in seven states now offering the service. Wing is developing a network that it says will be able to handle millions of deliveries worldwide by mid-2024, one of several companies scaling up drone fleets to reach more customers.

Pass the nachos: Good news for football fans planning tailgate and game-watch parties for the upcoming season. Tropical storm Hilary, which drenched Southern California with heavy rains earlier this month, largely left the state’s avocado growers unscathed, according to The Packer, which covers the fresh produce industry. Most of this year’s avocado harvest was picked before the storm. The California Avocado Commission’s president, Jeff Oberman, said some growing regions received as much as six inches of rain in one day, and that farmers would need time for the groves to dry out to fully assess the impact of this rare tropical storm. California accounts for about 90% of U.S. avocado production, harvesting 276.1 million pounds valued at $486.5 million in 2022.


Aug. 29: June S&P Case-Schiller home price index, August Consumer Confidence Index, and expected earnings from Best Buy Co. (BBY), Big Lots (BIG), Box, Inc. (BOX), and HP Inc. (HPQ).

Aug. 30: August ADP employment and revised Q2 Gross Domestic Product.

Aug. 31: Weekly Initial Jobless Claims, July Personal Consumption Expenditures (PCE) price index, July Personal Income and Spending, August Chicago Purchasing Managers Index (PMI), and expected earnings from Dell Technologies (DELL), Dollar General (DG), Hormel Foods (HRL), Lululemon Athletica (LULU), and UBS AG (UBS).

Sept. 1: August Employment Report, Construction Spending, and the Institute for Supply Management Manufacturing Index.

Sept. 4: U.S. markets are closed for Labor Day.

Sept. 5: July Factory Orders and expected earnings from GitLab Inc. (GTLB) and Zscaler Inc. (ZS).

Sept. 6: MBA Mortgage Applications Index, Trade Balance for July, Institute for Supply Management Non-Manufacturing Index for August, Fed’s Beige Book.


Key Takeaways

  • Busy week ahead to wrap up August features inflation and jobs data with potential rate implications

  • Stocks up early, but strong dollar, firm yields suggest final week of month could remain tough for bulls 

  • Earnings pick up steam as week advances with Best Buy, Salesforce, and Broadcom all on tap

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