QQD - IWV: Stocks Jump Following A Cooler Monthly Jobs Gain

Summary

• The Labor Department reported another strong payrolls gain in August, but cooler than July's hot report. The unemployment rate ticked up to 3.7%.
• The broad U.S. stock market rose nearly 20% from its June bottom to the August high, but then dipped 10% to Thursday's low.
• Traders took the data in stride, but expect more volatility ahead as September presses on and a key CPI report is in the offing.

After a red-hot July employment situation, the U.S. Department of Labor reported that the economy added 315k jobs in August. Private payrolls increased by 308k. The unemployment rate jumped from its prior 53-year low to 3.7%, the highest since February and above economists’ expectations.

Average hourly earnings were up 0.3%, less than expected. The year-on-year wage gain was 5.2% vs 5.3% expectations. The average workweek verified at 34.5, in line with the consensus forecast. The labor force participation rate, meanwhile, was high at 62.4%, a post-COVID peak. The high pre-COVID was 63.4%. In terms of revisions, June and July figures were brought down by 107k jobs. The more volatile Household survey revealed a 442k job gain, the strongest since March.

August NFP Report Recap: Unemployment Rate Up, Wage Growth Eases

The Labor Force Participation Rate Jumped As Older Workers Re-Enter The Jobs Market

The August jobs report was generally what the Fed wanted to see. While the headline employment gain was strong, the unemployment rate ticked up care of an increase in the labor force participation rate. Wage growth was less than expected, a key barometer for inflation. In all, it looks like a somewhat dovish report. There's still work to do, in the FOMC's eye, to cool the economy. Stocks jumped and rates were calm in the minutes after the report's release.

Education, Health Services, Profession and Business Services Lead August Employment Gains

Not a whole lot changed in expectations for a 75bp interest rate hike at the September FOMC meeting which begins in just 19 days.

A 75bp Interest Rate Increase Remains The Expectation

August’s jobs moderation comes after a classic stock market correction that has taken place over the past three weeks. A nearly 20% rally in the broad market, as measured by the iShares Russell 3000 ETF ( IWV ). The total U.S. stock market fund paused right where so many technicians expected – the falling 200-day moving average. IWV fell 9.98% from its August high to the Sept. 1 low. Going into the long holiday weekend, expect volatility this afternoon as traders position themselves. Next week is quiet on the data front, though.

IWV: Russell 3000 Rallies 20%, Corrects 10%. Volatility Remains High.

Upcoming Economic Data

Investors must still recognize that the broad U.S. equity market remains in a downtrend. We need to see more definitive signs of a low before an “all clear” can be issued. Just 26% of NYSE stocks currently trade above their respective 200-day moving average, according to Index Indicators .

Many Stocks Remain In A Downtrend

The jobs report is just one economic health barometer. Recently, financial conditions have tightened, which Chair Powell loves to see. Consider that over the last month three of the four key measures of tightness have turned in the Fed’s favor. The U.S. dollar has surged to 20-year highs, up 4.2% month-on-month. Meanwhile, US stocks are down nearly 4% as intermediate-term Treasuries are off more than 5%. Credit spreads, a key risk gauge, are about flat from early August, though.

Financial Conditions Have Tightened In The Last Few Weeks

The Bottom Line

The report was not too hot, not too dismal. Lower wage growth and a tick-up in the participation rate are good signs, but yet another robust month of payroll gains still suggests the jobs market is not yet in "painful" territory as Jay might desire. All eyes now turn to how the broad stock market will react to the next CPI report which comes on Sept. 13.

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