Economic Data and Market Highlights
Global equity markets struggles this week as the MSCI All Country World Index fell 3.7%. The S&P 500 fell 4.22% as Information Technology ( -7.05%), Energy (-5.70%), and Communication Services (-5.04%) pushed the index downward. All sectors were negative except Consumer Staples (+0.64%) and Real Estate (+0.19%). US hiring took another hit in August, with the two prior months also being downgraded basically cemented Wall Street expectations of a rate cut at the September meeting. Consensus varies around the amount based on the weaker than expected data.
Non-farm payrolls rose by 142,000 last month, the lowest average level since mid 2020. Meanwhile the US unemployment rate fell to 4.2%, the first decline in 5 months. Fed Governor Cristopher Waller said that it is important for the US central bank begin cutting interest rates immediately or else they will risk further weakening of the labor market. Waller was quoted in saying that he is open minded about the potential for a larger cut at the upcoming September meeting. In response the two-year treasury yield fell, while futures market price action showed that investors increasingly expect a 50bps cut this month. Hiring has been hurt by job losses in manufacturing, retail, and IT sectors. Healthcare and education have been the biggest drivers of hiring since the pandemic and boosted hiring by the least since 2022. Pay increases exceeded expectations, with average hourly earnings rising 0.4% compared to estimates of 0.3%.
Two themes are emerging in market sentiment. A new paradigm with a focus on economic growth versus inflation and broadening of market returns. The Fed seems to have switched from worrying about too much growth to now worrying about too little growth. Markets have been a lot more sensitive to economic indicators than they have in the past. This week weaker than expected manufacturing data led to another reassessment of the outlook and stocks fell as well as the yields. when the market focused on inflation good economic news was generally bad news for stocks because it meant upward price pressure and higher interest rates from the Fed. Now good economic news is good for stocks as it relieves concerns about growth with rate cuts priced in anyway. The opposite is also true with weaker economic data.
The S&P 500 struggled this week due to the jobs reports mentioned previously, with stocks seeing their worst selloff since March 2023. The S&P 500 fell 1.7% while the Nasdaq 100 composite fell 2.7%. Nvidia was the leader when it came to losses, losing $400B of value throughout the week. Volatility in the $2.5T company has been immense, whipsawing between $90.69 and $131.26 over the past 30 days. The stock’s decline comes after a less than perfect earnings call which forecasted issues with one of their primary chips. Along with news that the US justice department could potentially be entering into an antitrust suit, sentiment has weakened. Since June 19th, when Nvidia hit its last high, cheap value stocks have outperformed growth.
Technology and communication services went from the best performing sectors to the worst while leveraged real estate went from the worst to the best, helped by falling treasury yields. Utilities were helped by lower yields but were boosted most of the year as demand for electricity has increased due to AI processing. Smaller companies have benefited from falling yields even though they carry more debt.
The Past Week’s notable US data points
The Upcoming Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst