US Labour Market Report to Test Investors’ Confidence
The US labour market report, set to be released late next week, will provide a crucial insight into the economy’s health and test investors’ confidence that interest-rate cuts are coming soon. This confidence has helped lift US equities to record-high levels.
Expected Job Growth
A Reuters poll suggests that US employment in August is expected to have climbed by 75,000 jobs. This follows a surprisingly weak US payrolls data released last month, which raised expectations that the Federal Reserve will start cutting rates again at its next meeting in September. The central bank aims to support the labour market despite inflation worries.
Impact on the Economy and Stock Market
A soft August employment report could raise concerns about a slowing economy, but it might also lead the market to price in more aggressive cuts. According to Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, "Lower rates probably trump a modestly slowing labour market, and that probably puts a floor underneath the economy and … the stock market." This means that even if the job market slows down a bit, lower interest rates could still help the economy and the stock market.
Current Market Trends
US equities have been performing well since hitting their lows for the year in April. Investors have become less concerned about the impact of US President Donald Trump’s tariffs on the economy, and many tech and other stocks have benefited from optimism about the business potential of artificial intelligence. However, stock indexes fell on Friday due to declines in AI-related names, adding to recent shakiness in tech stocks.
Historically Challenging Period
Markets are currently in a historically treacherous patch on the calendar. September has ranked as the worst-performing month of the year for the S&P 500 over the past 35 years, with an average decline of 0.8%. The index has fallen 18 out of 35 times in September.
Fed Rate Cuts
The weak July jobs report raised market expectations that the Fed would cut rates at its next meeting in September. Fed funds futures suggest an 89% chance that the central bank will reduce rates by 25 basis points at its meeting. According to Drew Matus, chief market strategist at MetLife Investment Management, "It would take very broad-based strength in the report in order to get the Fed to rethink the idea of moving rates lower." This means that the Fed is likely to cut rates unless the jobs report is extremely strong.
Other Developments at the Fed
Other developments at the Fed will also be in focus for the market in the coming week. Trump’s move to fire Fed Governor Lisa Cook has reignited concerns over the Fed’s credibility and its ability to conduct monetary policy free of political pressure. While the situation has ramped up speculation in capital markets around Fed independence, those risks are probably appropriately priced in, for now.
Conclusion
In conclusion, the upcoming US labour market report will be closely watched by investors and could have a significant impact on the economy and the stock market. While a soft jobs report could raise concerns about a slowing economy, it might also lead to more aggressive rate cuts by the Fed. The market will be closely watching the report and other developments at the Fed, including the controversy surrounding Trump’s attempt to fire Fed Governor Lisa Cook. As the economy and the stock market continue to evolve, it’s essential to stay informed about the latest developments and trends.
