Market Update – September 9th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, September 9th, 2024

Financial Markets

Stocks sold off last week on concerns over an economic slowdown driven by weaker-than-expected job gains reported on Friday. As of Friday, September 6th, the Nasdaq Composite had its worst week since 2022, declining by -5.77%. The S&P 500 saw its steepest drop since 2023, falling by -4.25%, while the Dow Jones Industrial Average also fell by -2.93% for the week. Finally, the Barclays Aggregate Bond Index rose by 0.94%, as interest rates have been slipping ahead of upcoming expected rate cuts.

Market News

August Unemployment. In August, the unemployment rate ticked down to 4.2%, in line with expectations. On the other hand, job gains fell short of expectations, coming in at 142,000 compared to the anticipated 161,000. The largest job gains stemmed from construction, healthcare, and social assistance, while manufacturing jobs experienced a decline. Average hourly earnings rose by 0.4% in the month and 3.8% from August of 2023. These weaker-than-expected job gains fueled Friday’s market sell-off and deepened concerns about a potential economic slowdown ahead.

Source: US Bureau of Labor Statistics

ADP Employment Report. Ahead of the August jobs report, ADP’s National Employment Report revealed that private employers added just 99,000 jobs in August, falling short of expectations and reflecting the continued cooling of the labor market since the unemployment rate hit a low of 3.4% in April 2023.
 
Industries with job gains included education (+29,000), construction (+27,000), and other services (+20,000). Conversely, job losses were reported in professional and business services (-16,000), manufacturing (-8,000), and information services (-4,000). This month’s ADP employment report echoes the growing softness in the labor market and may hold implications for how aggressively the Federal Reserve chooses to cut rates in the coming months. tightening.

ISM Manufacturing. The August ISM Manufacturing Index came in at 47.2%, a slight improvement from July but still below economists’ forecasts, indicating contraction in the sector. In the report, the Institute for Supply Management highlighted that demand remains weak, as businesses are hesitant to invest in capital and inventory, due to tight monetary policy and uncertainty surrounding the upcoming US presidential election.
 
This month’s reading continues the bearish trend in the manufacturing sector, which has been the case since 2022. The report also raised further concerns about the state of the US economy and increased expectations for a more aggressive 50 basis point rate cut at the September Federal Reserve meeting, compared to the previously anticipated 25 basis point cut.

Source: Institute for Supply Management 

ISM Services. Economic activity in the service sector expanded for the second consecutive month in August, with the ISM Services Index posting at 51.5%, up slightly from July’s 51.4%. This marks sector growth in six of the eight months of 2024 and the 48th month of expansion in the past 51 months. While many industries reported slow-to-moderate growth, businesses continue to face challenges from high costs and interest rate pressures, which have impacted sales and traffic. Despite the headwinds, the services sector remained resilient in August, supporting overall strength in the US economy.

Source: Institute for Supply Management

Yield Curve. The yield curve, specifically the spread between the 10-year and 2-year U.S. Treasury yields, has uninverted for the first time in over two years. This past week marked the end of an inversion that began in July 2022, where the 2-year Treasury yield exceeded the 10-year Treasury yield.
 
Historically, a de-inverting yield curve has been a precursor to a recession, typically occurring a few months before an economic downturn. This deinversion could be signaling a potential recession or may be an unusual deviation from historical patterns. Weaker jobs data, declining manufacturing activity, and other economic warning signs suggest the potential for an economic slowdown remains.

Summary

Last week, stocks tumbled as concerns over an economic slowdown intensified, driven by weaker-than-expected job gains in August. The unemployment rate edged down to 4.2%, but only 142,000 jobs were added, falling short of projections. ADP’s report also showed cooling in the labor market, with just 99,000 private sector jobs created. While the ISM Manufacturing Index indicated continued contraction, the services sector remained resilient with modest growth. Finally, the yield curve uninverted for the first time in two years, a potential recession signal, adding to overall market concerns.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.