The S&P 500 managed a modest 0.3% gain last week, even setting a new record high on Thursday before retreating following Friday's disappointing jobs report. The Nasdaq outperformed with a 1.1% weekly increase, while the Dow Jones lagged behind, posting a 0.3% loss. Small-cap stocks, represented by the Russell 2000, showed resilience with a 1.0% gain, continuing their third-quarter rally.
The week's market action was primarily driven by concerns over a weakening labor market, highlighted by August's disappointing Payroll jobs report that showed slower hiring and an unemployment rate rising to 4.3%. This data reinforced investor expectations for Fed rate cuts at the next September 17 meeting. Rising Treasury yields initially pressured equities early in the week, with the 30-year yield approaching the critical 5% level, though yields subsequently fell after the weak employment data, providing some relief to certain sectors like homebuilders. Bonds yields finished around 10-15bps lower.
Additional market pressures stemmed from trade policy uncertainty, including a federal appeals court ruling against some of former Trump's tariffs and threats of new trade actions. Although hitting new records, the market continues to exhibit signs of profit-taking as we navigate the historically challenging month of September, with elevated valuations and mixed economic signals weighing against corporate earnings resilience and Fed rate cuts expectations.
This new week's economic data highlights include new consumer and producer inflation, as well as the expected payroll revisions, along with auctions for the 10 and 30-year bonds to gauge US Fixed Income appetite. After recent weak labor data, the market has increased rate cuts expectations for this year, with almost 75bps of cuts priced in now.
