Jobs Data Fail to Resolve Fed Debate Over Sept Cut | Bloomberg: The Close 09/06/2024

Introduction

The countdown is on for everything you need to get an edge at the end of the market day. This is The Close. As the Federal Reserve enters its media blackout period, markets are responding with volatility. From Bloomberg headquarters in New York, I'm Romaine Bostick, and I'm Alex Steel. Today, we witnessed fireworks in the markets.

Broadly, the market is showing signs of a sell-off, particularly in tech stocks, with the S&P 500 nearing lows for the session. Tech stocks are bearing the brunt of the downturn. Money is pouring into the bond market, especially at the front end, dis-inverting the yield curve as the spread now sits at five basis points. The dollar is weaker, the yen is gaining strength, and crude oil prices are falling as investors seek safer assets.

It’s been a challenging week, and it's tough to pin the massive market moves on any one factor. Market concerns abound: high valuations, skepticism around AI, cracks in consumer sentiment, and a labor report that, while generally inline, included upward revisions that indicate a cooling economic environment. Fed Governor Waller noted that immediate action may be necessary given the shift in risk balance toward employment. New York Fed President John Williams remarked that cutting rates is appropriate, while Chicago Fed President Austin Goolsbee warned that failing to act soon could lead to rising recession risks.

The Fed will begin a two-day policy meeting on September 17, during which stocks and bonds will be left to navigate their own trajectories over the next seven trading days. The S&P 500 is precariously close to retesting its 100-day moving average, and the NASDAQ 100 is hovering near its 200-day moving average. Chip stocks are poised to log their worst weekly performance since March 2020.

The latest jobs report, while not catastrophic, hinted at ongoing weaknesses in the labor market. Julia Coronado, president of Macro Policy Perspectives and a former Fed economist, opined that the pace of hiring shows signs of declining, despite a stable unemployment rate. As reports of wage growth stabilize, it appears that the labor market is not generating sustained inflationary pressures.

Despite this, the intensity of the equity sell-off has some wondering whether the market is predicting challenges not yet reflected in backward-looking data. Concerns over high valuations persisted, especially as stocks perceived as overpriced like chip stocks and the Magnificent Seven face reevaluation.

NVIDIA, for instance, dipped heavily this week, while tech stocks overall are experiencing severe declines. Following a recap of the weak market conditions, the focus shifts to Apple's upcoming product launch on Monday, where potential AI advancements may be revealed, as well as look for devices such as the new iPhone 17.

As the market heads into next week, significant attention will be placed on the movements of the Federal Reserve and their implementation of rate cuts, understood to be around 240 basis points anticipated through the end of next year. The discussion continues on how quickly the economy can shift, as well as possible ramifications of government fiscal decisions affecting how the Fed operates.

In conclusion, the markets are gripped by uncertainty as traders analyze the implications of the recent labor market data while preparing for upcoming Fed decisions.

Keywords

• Federal Reserve
• Rate Cuts
• Labor Market
• Jobs Report
• Equity Sell-off
• Tech Stocks
• Economic Activity
• AI
• Apple
• NVIDIA

FAQ

1. What did the latest jobs report indicate?
The jobs report showed a decline in the pace of hiring, suggesting a cooling labor market, despite the unemployment rate remaining stable.

2. How are markets reacting to Fed uncertainties?
Markets are exhibiting significant volatility, particularly within technology stocks, while investors are seeking safer assets amid concerns of high valuations.

3. What are estimates for future Fed rate cuts?
Market consensus suggests about 240 basis points in rate cuts could occur through the end of next year depending on economic conditions.

4. What is the significance of the Apple iPhone launch?
Apple is expected to unveil new features leveraging AI technology during their launch on September 9, which could influence market sentiment.

5. What are the repercussions of high valuations in tech?
The high valuations in tech stocks have led to increased skepticism and reevaluation, particularly for the so-called Magnificent Seven and semiconductor companies like NVIDIA.