Weekly Market Update: September 16, 2024

The nation added an estimated 142,000 jobs in August. That figure was below the consensus calling for 161,000 additions and was accompanied by a sharp downward revision of 86,000 jobs to the prior two-month total. The Labor Department report came on the heels of weak August private-sector jobs creation figures from payroll processor Automatic Data Processing and a decline in the number of job openings last month. The nation’s unemployment rate ticked lower, to 4.2%, but it was nonetheless a weak labor market report.

Meanwhile, the inflation situation continues to improve. This was reflected in the latest Consumer Price Index (CPI) readings. Specifically, the CPI and core CPI, which excludes the more-volatile food and energy components, increased 0.2% and 0.3%, respectively, in August, with the latter a bit hotter than expected. However, on a 12-month basis, the headline CPI rose 2.5%, which was down notably from the July reading of 2.9%, and the slowest pace since February, 2021.

The Federal Reserve is ready to begin reducing the federal funds rate. The decision will likely be made at the September Federal Open Market Committee (FOMC) meeting, which is scheduled to conclude on September 18th. Treasury yields fell in anticipation of the Fed reversing monetary policy course this month, but we also think the increased interest in fixed-income securities was due to growing fears about the health of the U.S. economy. (The price of government-backed bonds, which are viewed as safe-haven holdings, moves inversely to the yield.) The economic worries were caused by the aforementioned soft labor data and a continued contraction in manufacturing activity.

Conclusion: Volatility in the U.S. stock market picked up during the first half of September, a month that has historically been the worst for equities. This uneven performance, which included a number of outsized daily moves for the major equity averages, most notably the technology- heavy NASDAQ Composite, was triggered by increased uncertainty in the market. There also has been a recent rotation into more defensive-oriented sectors, including utilities. Investors are worried about the health of the economy, the Federal Reserve’s near-term interest-rate policies, escalating global geopolitical unrest, and an upcoming Presidential election. Given this backdrop, we continue to recommend a portfolio con- sisting of mostly high-quality stocks and cash-equivalent securities. 

Source: ValueLine.com