U.S. markets closed the week little changed, but the tone
shifted Friday. A much stronger August jobs report pushed Treasury yields and
the dollar higher, and sent stocks lower into the close. It also revived talk
of a Federal Reserve rate hike later this month.
The tension for investors is now clear. Hiring and economic
activity look sturdier than expected, yet input costs remain persistently high.
Here•s how markets performed, and the headlines behind the
numbers.
Stock Index Performance
- The S&P 500 edged up 0.09%.
- The Nasdaq 100 rose 0.38%.
- The Dow Jones Industrial Average slipped 0.27%.
What the Data Reveals
A strong jobs report. Employers added
162,000 jobs in August, far above expectations, while unemployment
held at 4.1%. July•s job openings, released the same week, showed a labor
market that•s neither expanding nor contracting, with hiring and layoffs both
roughly flat. Together, the data points to stabilization after a weak summer.
That eases recession worries, but it also keeps a rate increase a real
possibility.
Yields, not stocks, drove the week. The major
indexes finished with only modest changes, masking a volatile, rate-driven week
underneath. The 10-year Treasury yield pushed above 4.78%, a 20-month high,
while short-term yields jumped on renewed expectations of a Fed rate hike.
Higher yields raise borrowing costs across the economy and weigh hardest on
companies whose profits are expected further in the future.
Inflation pressures still present a challenge. Brent
crude oil neared $96 a barrel amid renewed U.S.-Iran tensions, adding to
inflation risk. Additionally, services businesses reported prices paid at a
four-year high. The longer inflation remains problematic, the more pressure it
puts on the Fed to act, and now, markets are increasingly leaning toward a hike
in September.
The Week Ahead
The biggest thing to watch is inflation itself. On
Thursday, Sept. 10th,
Consumer Price Index (CPI) and producer-price data will show whether the high
prices businesses have been reporting are reaching consumers, impacting the
Fed•s options and bond yields. Additionally, Treasury yields deserve attention
this week, especially if the 10-year climbs further.
All the best,
