- Stocks Have Largely Rallied Since Hitting Lows Mid-August
- Chinese Economy Struggles Could Offset Inflationary Pressure
- Market Volatility Getting Back Near Yearly Lows
Stocks ended Thursday mixed and were unable to recoup losses from earlier in August, ending a five month winning streak. For the day, the S&P 500 was down 0.2% while the Nasdaq Composite was up 0.1%. Despite being down overall on the month, markets bottomed back on August 18th and have been trending higher ever since. Therefore, I think it’s worth taking into account the context of where things currently stand. Following the release of today’s mixed jobs report, we’ll see if markets can enter September with continued momentum.
For the month of August, non-farm payrolls came in at 187 thousand, higher than the 170 thousand being forecast. However, that marks three consecutive months of less than 200 thousand new jobs created. July figures were revised downward to 157 thousand new jobs from the previously reported 187 thousand. Also, the unemployment rate came in significantly higher than expected at 3.8% vs. forecasts of 3.5%. Following today’s report, odds for a rate hike in September, as reported by the CME, stand at just 11%, while odds for an increase ticked down slightly to under 40%. The cooling of the labor market along with easing in pricing pressures could prove a positive for investors.
Yesterday, the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) report, was in line with expectations. On a month-over-month basis, prices were higher by 0.2%, while on a year-over-year basis, they increased 0.4%. Some of the slowdown in inflationary pressures may be the result of a weakening Chinese economy. Data out of China shows a slowdown in both manufacturing and services, despite recent efforts to stimulate the economy.
The slowing economic situation in China may help offset some other inflationary pressures, in particular, oil. Since hitting a low of $68/barrel back in April, oil is up just under 25% and is currently trading just over $84/barrel in premarket. That has helped to push up prices at the pump as well, with the average price for a gallon of gas sitting at $3.82, up from $3.63 back in April. Gas prices are now back to the same levels as they were a year ago.
Some individual stocks making news today include Lululemon. The athletic apparel maker reported earnings that beat on both the top and bottom line. The company also raised full year guidance, sending the stock up 2% premarket. Shares of PC maker Dell are up 10% premarket after reporting earnings and also raising their full year forecast. Tesla
I also want to point out the drop in market volatility. The VIX, which had nearly reached 19 just a couple of weeks ago, is now back down in the 13 area. That is well below historical averages and connotes a lack of concern as we head into the weekend. I find that interesting in light of some potential upcoming challenges. Congress and the White House will need to reach agreement on new spending bills as the fiscal year draws to a close at the end of this month. Just yesterday, the White House asked Congress to pass a short-term funding measure in order to avoid a potential government shutdown.
Finally, as we head into the three day weekend, I would be on the lookout for volume to significantly taper off after the first hour of trading. We tend to see activity dwindle heading into extended weekends. In fact, the only reason we’ve continued to see decent volume this far into the week is probably because of yesterday’s PCE report and this morning’s jobs number. I hope everyone enjoys the Labor Day weekend and as always, I would stick with your investing plans and long term objectives.
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