2023-08-04 12:45:00 ET
Summary
- U.S. nonfarm payrolls up by 187k in July; Unemployment rate down 3.5% for the month.
- Should investors be watching hours worked like some of the Fed members?
- Roth MKM warns of possible economic downturn before year end.
Listen below or on the go on Apple Podcasts and Spotify
Nonfarm payrolls come in light with down revisions but the jobless rate falls to 3.5%. (0:12) Fortinet (FTNT) stock hammered. (3:03) Why it may be too soon to throw in the recession towel. (4:00)
This is an abridged transcript of the podcast.
Our top story in today’s session –
U.S. nonfarm payrolls rose by 187,000 in July, a little lower than the 200,000 expected. June was revised down to 185,000.
But the unemployment rate ticked down for a second straight month to 3.5% from 3.6% in June.
Average hourly earnings growth stayed steady, rising 0.4% on the month, stronger than the 0.3% increase expected. On a Y/Y basis, earnings are up 4.4%, compared with 4.2% expected.
Seeking Alpha analyst Damir Tokic says the wage growth is inflationary, while the lower jobless rate points to a labor shortage.
Allianz adviser Mohamed El-Erian says this month's report "has something for everyone" in terms of the type of landing the U.S. economy is headed for. "The softer-landing camp will take comfort in the lower-than-expected payroll gain," and the "harder-landing camp will point to hotter wage growth (4.4%) and the fall in the unemployment rate," he tweeted.
The chance of a quarter-point rate hike at the Fed's September meeting edged up slightly to 18.5% from 18%.
There is a question about whether the Fed is more interested in hours worked than the unemployment rate or payroll. Chicago Fed President Austan Goolsbee has pointed to this as an indication of labor market softness.
This week, St. Louis Fed economists published a new monthly weekly index of usual weekly hours worked per capita. That showed a sharp snapback in hours worked to near pre-COVID levels, in contrast to the slow recovery after the Great Recession.
Q2 hours worked showed a sharp slowdown, and July data showed another downtick that Tokic says "signals the upcoming economic weakness this fall."
"This is the worst-case scenario for the stock market, sticky inflation and slower growth. The Fed will likely be forced to hike into the slowdown," he adds.
Now a look at today’s trading –
Stocks are higher in choppy trading following the jobs numbers.
The S&P (SP500), Nasdaq (COMP.IND), and Dow (DJI) are up less than 0.5%. But all three indexes will likely close in the red for the week.
Rates are easing back. The 10-year Treasury yield (US10Y) is back down around 4.1%. The 2-year yield (US2Y) is back down to 4.8%.
Oil (CL1:COM) is higher, above $82 per barrel. Gold (XAUUSD:CUR) is also higher.
Among active stocks –
Helped by cost optimization efforts and the fastest delivery speeds it has ever recorded, Amazon ( AMZN ) is jumping. Its Q2 revenue handily beat estimates . The company also set ambitious Q3 targets and said every one of its businesses has multiple ongoing generative AI initiatives. CFO Brian Olsavsky further confirmed on the earnings call that AWS is now stabilizing and cost optimizations are moderating.
Apple (AAPL) saw its sales decline for the third consecutive quarter . Pressures are expected to continue into Q4, with CFO Luca Maestri forecasting a double-digit decline in iPad and Mac sales due to tough comparisons. On the upside, iPhone sales are expected to improve sequentially, while Services revenue reached an all-time high.
Fortinet (FTNT) shares plummeted after the cybersecurity company lowered its full-year guidance. Several Wall Street analysts said the economy is clearly weighing on results. BMO analyst Keith Bachman kept his Market Perform rating on the stock but lowered his price target to $72 from $88, noting that the company is seeing an impact in its core business as well as the broader firewall.
Tupperware Brands (TUP) surged 50% on a debt restructuring deal with its lenders, four months after the cash-strapped company flagged substantial doubt about its ability to continue as a going concern. The deal includes the reduction and reallocation of about $150 million in cash interest and fees and the extension of the maturity of about $348 million principal and reallocated interest to 2027. It also includes lower amortization payments by about $55 million and immediate access to about $21 million in revolving credit.
For income investors, here are the highlights for Seeking Alpha’s weekly Dividend Roundup .
This week's dividend activity included increased payouts from Diamondback Energy (FANG) and BP (BP), as well as declarations from companies like Kimberly-Clark (KMB) and Amgen (AMGN).
Looking towards next week, industry players like IBM (IBM), MetLife (MET), and Walmart (WMT) will go ex-dividend.
In the Wall Street Research Corner –
Mathew Darda, chief economist and market strategist for Roth MKM, warns that an economic downturn could still come before the end of the year.
He says they "remain firmly in the camp that there is likely to be a recession between 2H23 and 1H24 ."
Darda pointed to a dramatic tightening in lending standards, which he says has likely not been fully reflected in the macro data. And he pointed out weakness in the ISM Manufacturing Index for July, suggesting an economy performing well below tracking estimates for Q3.
"The verisimilitude of a soft landing and the stock market soaring 20% in four months has caused many to throw in the towel on the recession call," he says. "The same thing happened during the late-cycle rallies prior to the 1990–1991 and 2007–2009 recessions."
For further details see:
Wall Street Lunch: Something For Everyone In Jobs Report