Weekly Wrap

September started on a downbeat note for the stock market. The major indices all registered sizable decline on this holiday-shortened week. Broad selling activity led the S&P 500 to fall below its 50-day moving average. 

The downside bias was related to normal consolidation activity after a big run. This was sparked by fears about a weakening labor market and economic growth prospects. Friday's release of the August Employment Situation report added to the market's emerging fears.

Hiring activity was lighter than expected in August and there were downward revisions to July and June that left employment 86,000 lower for those months than previously reported. The report also showed that the unemployment rate declined slightly and average hourly earnings increased a stronger than expected 0.4% month-over-month.

This week's labor market data included the ADP Employment Change Report for August, which was weaker than expected, and the weekly initial jobless claims report, which was better than expected. Other influential data included the revised Q2 productivity report that showed an upward revision to productivity and a downward revision to unit labor costs, and the ISM Services PMI for August, which was better than expected but little changed from July.

Weakness in the semiconductor space also contributed to the negative bias. The PHLX Semiconductor Index (SOX) dropped 12.2% this week. Broadcom (AVGO) was among the notable names in the space, sliding 15.9% after relatively disappointing guidance that piled onto current fears that the pace of growth is slowing for many richly-valued semiconductor stocks.

The aforementioned price action led the S&P 500 information technology sector to close 7.1% lower on the week. It was the worst performing sector followed by energy (-5.6%), communication services (-5.1%), and materials (-4.8%).

The only sectors to close higher this week were the rate-sensitive real estate sector (+0.2%) and the consumer staples sector (+0.6%).

The 10-yr note yield settled 20 basis points lower at 3.71%. The 2-yr note yield settled 28 basis points lower at 3.65%.

Tuesday:

The stock market started the new month sharply lower. The major indices tumbled out of the gate before briefly plateauing around mid-day. Selling picked up again in the afternoon trade, leading the Dow Jones Industrial Average to settle more than 600 points lower. The Nasdaq Composite closed nearly 600 points lower, the S&P 500 declined more than 100 points, and the Russell 2000 shed 3.1%.

Volume increased after running below-average in recent weeks. The downside bias was related to normal consolidation activity, sparked by growth worries after China's Manufacturing PMI for August showed a deepening contraction. Tuesday morning's release of the ISM Manufacturing Index for August showed improvement, but not as much as expected, piling onto the emerging concerns.

Treasury yields settled lower in response to the growth concerns and soft economic data.

Reviewing Tuesday's economic data:

• August S&P Global US Manufacturing PMI - Final 47.9; Prior 48.0
• August ISM Manufacturing Index 47.2% (Briefing.com consensus 47.5%); Prior 46.8%
  • The key takeaway from the report is that it has reinforced the understanding that conditions in the U.S. manufacturing sector are weak.
• July Construction Spending -0.3% (Briefing.com consensus 0.2%); Prior was revised to 0.0% from -0.3%
  • The key takeaway from the report is that new single-family construction was weak in July.

Wednesday:

The stock market settled little changed from Tuesday's close. There wasn't much carryover selling interest after the S&P 500 found support on an early test of its 50-day moving average (5,506). The index dropped below that level in the afternoon, but ultimately settled the day above the key, short-term support level.

Market breadth reflected a lack of conviction on either side of the tape, contributing to the lackluster action at the index level along with choppy movement in some mega cap names. 

This sent Treasury yields lower, which didn't stir selling in equities due to the notion that weakness in the labor market will drive the Fed to cat rates by 50 basis points this month.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 1.6%; Prior 0.5%
• July Trade Balance -$78.8 bln (Briefing.com consensus -$78.5 bln); Prior was revised to -$73.0 bln from -$73.1 bln
  • The key takeaway from the report is the uptick in imports. While that will act as a drag on Q3 GDP forecasts, the increase in imports will nonetheless be construed as a reassuring demand signal for the U.S. economy.
• July Factory Orders 5.0% (Briefing.com consensus 4.5%); Prior -3.3%
  • The key takeaway from the report is that business spending languished in July.
• July JOLTS - Job Openings 7.673 mln; Prior was revised to 7.910 mln from 8.184 mln

Thursday:

The market had a mixed showing again. 

Mixed action persisted through the entire session due to a lack of conviction in front of the August Employment Situation Report on Friday at 8:30 ET. The market's focus of late has been on labor market conditions, but Thursday morning's data didn't garner outsized responses from equities or bonds.

The lackluster action was also due to the understanding that the market has experienced quite a bit of consolidation this week.

Tesla (TSLA) was a winning standout from the mega cap space after a Bloomberg report that it could introduce full self-driving technology in China and Europe, pending necessary approvals, in the first quarter of 2025.

Reviewing Thursday's economic data:

• August ADP Employment Change 99K (Briefing.com consensus 150K); Prior was revised to 111K from 122K
• Weekly Initial Claims 227K (Briefing.com consensus 236K); Prior was revised to 232K from 231K, Weekly Continuing Claims 1.838 mln; Prior was revised to 1.860 mln from 1.868 mln
  • The key takeaway from the report is that layoff activity remains relatively tame; however, so does hiring activity, evidenced by the elevated stickiness of continuing jobless claims.
• Q2 Productivity-Rev. 2.5% (Briefing.com consensus 2.3%); Prior 2.3%,Q2 Unit Labor Costs-Rev. 0.4% (Briefing.com consensus 0.9%); Prior 0.9%
  • The key takeaway from the report was the friendly inflation view embedded in the softening unit labor costs. They were up just 0.3% over the last four quarters, which is the lowest rate since the fourth quarter of 2013.
• August S&P Global US Services PMI - Final 55.7; Prior 55.0
• August ISM Non-Manufacturing Index 51.5% (Briefing.com consensus 51.0%); Prior 51.4%
  • The key takeaway from the report is that overall activity in the largest sector of the U.S. economy remains in an expansion mode, which is what the market, worried about a possible hard landing, wants to see. Slow to moderate growth, the report said, was noted across many industries.

Friday:

The stock market closed the first week of September on a downbeat note. The major indices registered sizable declines, settling near their lows of the session.

Participants were reacting to this morning's release of the August Employment Situation report. The report was weak enough to fuel more selling on this downbeat week for equities, but not weak enough to convince the market that the FOMC will cut rates by 50 basis points at the September 17-18 FOMC meeting.

The negative bias also stemmed from weakness in the semiconductor space.

Reviewing Friday's economic data:

• August Nonfarm Payrolls 142K (Briefing.com consensus 165K); Prior was revised to 89K from 114K, August Nonfarm Private Payrolls 118K (Briefing.com consensus 142K); Prior was revised to 74K from 97K,
• August Avg. Hourly Earnings 0.4% (Briefing.com consensus 0.3%); Prior 0.2%, August Unemployment Rate 4.2% (Briefing.com consensus 4.2%); Prior 4.3%, August Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.2
  • The key takeaway from the report is that it was not as good as hoped, but it also wasn't as bad as feared. It was a report, however, that meshes with the understanding that there is a slowdown in hiring activity that should translate into a slowdown for the economy.