S&P 500 Is Set for Worst Jobs Day in Two Years

“After the big equity run higher, investors are taking money off the table and booking profits since the October 2023 lows,” Wren said. “Expect the near-term volatility to continue. We remain more cautious on both equity and fixed income exposure and are looking for better entry points in both asset classes.”

Wall Street’s Reaction to Jobs Report

Andrew Brenner at NatAlliance Securities: “Panic Treasury buying continues as unemployment craters. The Fed has egg on their face. After raising our outlook to four cuts for the year, we are now raising that to five.”

Neil Dutta at Renaissance Macro Research: “Unemployment is up and that means the funds rate must come down.”

Steve Wyett, Chief Investment Strategist at BOK Financial: “After a surprisingly broad and weaker reading on manufacturing yesterday, the employment data adds to a short-term sense the Fed is now behind the curve on reducing rates. The outlook for rates has now moved to a better than average chance for a 50-basis point cut at the September meeting with a total of 3 cuts priced in between now and year-end.”

Quincy Krosby at LPL Financial: “Treasury yields dropped again indicating an impending economic growth scare while equities are becoming increasingly focused on the implications of a decidedly cooler backdrop. Recession fears are dominating headlines as market participants wonder how the Fed will respond when Fedspeak is turned on full volume next week. Needless to say, investors don’t want to hear that the deterioration in the labor market is  ‘transitory.’”

David Russell at TradeStation: “These numbers reflect a sharp deceleration in hiring, confirming the weakness we saw in yesterday’s claims data. The same Fed that was behind the curve on inflation could now find itself behind the curve fighting a slowdown. September 18 can’t come soon enough.”

Ian Lyngen at BMO Capital Markets: “The Sahm Rule Recession Indicator breached the 0.50 threshold that has historically signaled the US economy is in the early stages of a recession. We’re cognizant that there is plenty of data yet to come between now and the September 18th meeting — although if this trend in employment accelerates in August, the argument for a 50 bp cut becomes more compelling. That said, we are still in the 25 bp camp at the moment.”

Clark Bellin at Bellwether Wealth: “Friday’s weaker-than-expected jobs report reaffirms the Federal Reserve’s plans to cut interest rates in September, as it’s becoming clear that the labor market is cooling down. While the labor market has remained remarkably resilient over these past two years of elevated interest rates, it’s important for the Federal Reserve to stay ahead of any further labor market slowing by proceeding with its expected September rate cut.

“The stock market is churning as investors try to figure out if current valuations are justified given the softening economic data seen in recent months. Stock market volatility is very normal, and we believe the economy is still on a sound footing. As the market starts to recalibrate what could be the start of a longer-term rate cutting cycle, there may be additional stock market volatility along the way. Transitions in monetary policy regimes come with stock market volatility and some uncertainty.”

Charlie Ripley at Allianz Investment Management: “From a Fed perspective, this does not translate into making hasty policy decisions, but it should help them remove the rose-tinted glasses when assessing policy decisions at the next meeting. Ultimately, today’s employment data should embolden the committee to cut policy by more than 25 basis points at the next meeting.”

Jeff Roach at LPL Financial: “The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness. The number of those working part time for economic reasons rose the highest since June 2021. If the labor market weakens further, markets will likely price in three cuts this year.”

Alex McGrath at NorthEnd Private Wealth: “That all important macro data we have been hammering for months is finally starting to turn in an ominous direction.

“Once again prior prints were revised lower (I AM SHOCKED, SHOCKED I SAY!) and this week’s big miss all but cements a September rate cut and potentially more should this data continue to weaken on the heels of a very weak ISM number yesterday. The second tech wreck of 2024 certainly has investors perhaps more jittery than before and yields are plunging on this news.”

Steven Blitz at TS Lombard: “The inversion of the real yield curve last December was a warning. The Fed has a lot of room to cut and rather than having to work with overleveraged businesses and households, there is a liquidity overhang the Fed can draw on.”

George Mateyo at Key Wealth: “‘The times, they are a-changin’! After two-plus years of better-than-expected job creation, the economy printed its first major downside surprise and unemployment rose more than anticipated. This marks an official “growth scare” and one that the Fed will have to pay close attention to.

“To be true, the economy is still expanding and jobs are still being added, so calls that a recession is upon us are over-stated in our view. But the economic environment is changing quickly and the Fed should be attentive to downside risks. For investors, being balanced to risk and remaining invested in high quality stocks and bonds are the best defense as risks rise and uncertainty is likely to persist.”

Stephen Brown at Capital Economics: “Soft landing in doubt as labor market cracks. In short, all this makes a September interest rate seem certain and raises the possibility of both a larger 50 bp cut or even an inter-meeting cut, although the latter would probably be dependent on another sharp rise in the unemployment rate in the August Employment Report, ahead of the Fed’s 17th/18 th September meeting.”

Richard Flynn at Charles Schwab UK: “Today’s figures may stir anxieties that central bankers haven’t moved fast enough to cut rates, nudging the jobs market into a downward spiral. The Fed’s lengthy hiking campaign is so close to achieving its objective for inflation – let’s hope that success on that front doesn’t cause the labor market to tumble.”

Eric Roberts at Fiera Capital: “A cooling jobs report is welcome news for Fed decision makers who have been waiting for an equilibrium to emerge before confirming the probability of near-term interest rate cuts. The Fed wants consistency: more month-over-month slowdowns in wage growth and two downward revisions build the case for interest rate cuts sooner rather than later.”

This story was produced with the assistance of Bloomberg Automation.

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