Stocks had a mixed close yesterday with tech earnings pulling the Nasdaq higher while the other indexes languished. Inflation has not gone away according to yesterday's PCE Deflator, expected but not welcomed.
Labor day. I am sorry, but I couldn’t help myself. It is, after all, the Friday before Labor Day Weekend in the US. It is also the first Friday of September, which means something if you are an economics geek (like me ). On the first Friday of each month, the Bureau of Labor Statistics releases its monthly jobs report, making today, indeed, labor day for economists. That being… TODAY, all eyes will be on the tape this morning at 8:30 AM Wall Street Time. The monthly employment numbers are always a hot item on the calendar, though at this critical juncture they are particularly important.
Markets are mixed over whether or not the Fed will hike another +25 basis points in September’s or November’s FOMC meeting. Futures give a probability of 48% for a hike during that time, but as you can probably tell by the stock and bond markets, traders are not so exact, flip-flopping on the daily. That uncertainty was a big factor in last month's stock index loss… that’s right, it’s a new month, in case you missed it in the last paragraph. With interest rates at 5.5%, why in the world would the Fed need to raise rates more, much less want to?
The answer to that question came yesterday with the Core PCE Deflator which came in at +4.2%, slightly higher than last month’s +4.1% read. That is only a slight uptick, so why would the Fed care? Well, if you look at the Fed’s most recently projected Core PCE number for the end of this year, it was +3.9%, also close, but getting farther away with this recent uptick. In other words, we are not there yet. So, what IS the Fed going to watch between now and September 29th when the number is next released? Well, there is Consumer Price Index / CPI on September 13th. Oh, and what was I thinking, there is TODAY’S EMPLOYMENT NUMBERS!
Aside from the Fed’s obsession with inflation is its fixation with employment. Those two make up the “dual” in the Fed’s so-called dual mandate. There is that, and the historical reality that when folks are out of work or in fear of losing their jobs, they will consume less, which should ultimately lead to lower inflation. This morning’s Unemployment Rate is expected to come in at 3.5%. I am sure that I don’t have to remind you that unemployment at that level is just above lows not achieved since the late 1960s. Therefore, if the Fed thinks that unemployment would help in its fight against inflation, it may not be happy with those results. Oh, and going back to the Fed’s 2023 forecast again, it was expecting unemployment to rise to 4.10%. Another “not there yet,” if you ask me. That is precisely why, traders who are unsure of the Fed’s next move will be paying close attention to the numbers this morning.
I can just leave it there and send you off for a relaxing 3-day holiday, but I would be remiss if I didn’t point out one more thing from yesterday’s release. I know that it is not directly “labor” related, but it is important to note, and surely Mr. Fed noted it. Yesterday, we got Personal Spending from the Bureau of Economic Analysis which showed a +0.8% spending increase in July. That was slightly more than expected and June’s number was revised upward as well. What that means is that consumption remains strong. That is great for the economy, Taylor Swift, Beyoncé, and the producers of the Barbie movie, but not so great for inflation. Even though some, most, or all FOMC members were likely to have seen Taylor, Queen Bey, or Barbie, they were probably not expecting yesterday's number… and they were probably not happy about it either.
WHAT’S UP OR down IN THE PREMARKET
Broadcom Inc (AVGO) shares are lower by -4.64% in the premarket after the company announced that it beat on EPS and Revenues last quarter. The company provided current quarter guidance that represented revenue growth over last year, but analysts were hoping for more, given the building AI boost in the chips sector. In the past 30 days, 40% of analysts have revised their price targets, 10 up, 0 down, 14 unchanged, and 1 dropped. Dividend yield: 1.99%. Potential average analyst target upside: +1.4%.
Energy stocks are higher this morning. APA, Schlumberger, Occidental, Marathon, Halliburton, Exxon Mobil, Phillips 66, and Devon Energy are all on the premarket leaderboard as WTI Crude is up by another +1.27% to 84.71. Crude hasn’t seen these levels since 2022 and has been driven by supply cuts and expected demand increases from China which has been loosening monetary policy to boost its economy as recently as THIS MORNING.
YESTERDAY’S MARKETS
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