Weekend Update #245
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Equities touched new all-time highs this week, even as investors braced for the “September effect” where historically stocks have their worst performing month of the year. The gains come as AI development remains in full swing and investors look forward to interest rate cuts by the Federal Reserve. Weak labor market data on Friday sparked market confidence in at least two rate cuts before year-end, with some participants now anticipating a 50 basis point rate cut in the September meeting. Bank of America reported that its clients purchased $1.5 billion in small-cap stocks last week, the second-largest going back to 2008, so confidence is growing that market breadth will increase as rate cuts take effect.
In economic data for the week, jobs data on Friday was the key focus. Nonfarm Payrolls showed the U.S. added 22,000 jobs in August, falling below the 75,000 consensus estimate. The unemployment rate rose to 4.3%, which is the highest since October 2021, and the participation rate slightly increased to 62.3%. In July and August, the 3-month moving average for jobs added fell to the weakest level since 2020. Despite the softening, the country is avoiding net job loss like seen in June, which paints a positive picture for investors as the FOMC turns to rate cuts. Other data included ISM Manufacturing, which fell below estimates for August. JOLTS Job Openings showed a significant miss on available jobs in July, and for the first time since April 2021, there were fewer job openings than unemployed Americans. Initial Jobless Claims stayed relatively steady at 237,000 for the week ended August 30th. ISM Services was a bright spot with the index surpassing consensus estimates in August, driven by the strongest New Orders since October 2024.
In stock-specific news this week, Tesla offered a compensation package worth up to $1 trillion for Elon Musk if the company can grow to $8.5 trillion in market capitalization. Tesla would also have to meet certain adjusted EBITDA, vehicle delivery, and robot delivery targets for Elon Musk to achieve share awards. Alphabet shares rose over 9% on Wednesday as a U.S. judge rejected the demand for the company to divest its Google Chrome business. Separately, President Trump threatened new tariffs on the EU after the bloc’s antitrust division fined Google $3.5 billion over accusations it abused competitive dominance in advertising. Next week, investors will look to August CPI and PPI data for further insight into the magnitude of rate cuts the Federal Reserve could implement this year.
Friday’s Close (Weekly Performance)
S&P 500 6,481.50 (+0.33%)
Nasdaq 21,700.39 (+1.14%)
Dow Jones 45,400.86 (-0.32%)
Thank you Blue Room Senior Analyst JARED FENLEY.
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