U.S. stocks began trading in September with a positive start, following the release of the latest nonfarm payrolls report, which indicated a rise in the unemployment rate last month.
Moments after the market opened, the tech-heavy Nasdaq Composite (COMP.IND) experienced a 0.66% gain, reaching 14,127.30 points. The benchmark S&P 500 (SP500) also climbed 0.63% to 4,535.97 points, while the blue-chip Dow (DJI) saw a 0.59% increase to 34,927.30 points.
All 11 S&P sectors displayed positive activity, with Energy and Materials leading the way.
The U.S. Bureau of Labor Statistics reported that the economy added 187K nonfarm payrolls in August, surpassing the expected figure of 170K and exceeding the downwardly revised 157K reported in July. Meanwhile, the unemployment rate rose to 3.8%, higher than both the consensus and the previous reading of 3.5%.
Seeking Alpha contributor Damir Tokic provided insight on the labor market, stating, “The labor market is slowing down due to negative revisions in previous months. Wage growth is decelerating, and the participation rate is increasing, reflecting a degree of normalization. However, wage growth remains high and does not yet account for strikes and the risks associated with unionization.”
Tokic added, “Based on the August employment report, the stock market is likely to continue pricing in the soft landing scenario, mainly due to the 0.2% month-over-month increase in wage growth, which supports the Federal Reserve’s pause in September. However, the rally is expected to be short-lived, as the upcoming CPI is projected to show a significant increase in inflation to 3.8% based on Nowcast. It is too early to declare victory over inflation.”
Treasury yields, which rose prior to the release of the nonfarm payrolls data, now showed mixed movement. The 10-year yield (US10Y) increased by 2 basis points to 4.11%, while the more rate-sensitive 2-year yield (US2Y) declined by 6 basis points to 4.80%.
Check the Seeking Alpha bond page for live data on Treasury yield performance across the curve.
The highly anticipated jobs report, released during a week of economic data indicating cooling in the labor market, will be crucial in determining whether the Federal Reserve will proceed with rate hikes. The soft JOLTS and ADP data earlier in the week, along with Thursday’s Challenger report showing a significant increase in job cuts, have bolstered hopes that the central bank can maintain steady rates.
August concluded with U.S. stocks experiencing losses, as the S&P 500 (SP500) recorded only its second negative month of 2023, and the Nasdaq Composite (COMP.IND) had its worst monthly performance of the year. Concerns over prolonged higher rates, a bond sell-off, a technology pullback, and unexpected moves from credit rating agencies influenced sentiment throughout August, following a strong rally that saw the S&P (SP500) surge nearly 20% until July.
According to Henry Allen of Deutsche Bank, “August has been a challenging month for financial markets, with only 12 out of the 38 non-currency assets we track showing positive performance. Factors contributing to this include the expectation of higher interest rates for a longer period and the 10-year U.S. Treasury yield reaching its highest level in this cycle so far.”
Allen added, “In addition, economic data has shown further weaknesses, particularly in Europe and China, leading to growing concerns regarding the near-term outlook. However, there was a recovery during the last week of the month, which allowed August to slightly outperform February, when only 11 of the assets we track were positive.”
Turning to notable movers, Dell Technologies (DELL) experienced a significant increase after beating quarterly estimates, with analysts anticipating further growth driven by artificial intelligence.