Stocks Finish Friday’s Session in Negative Territory
Last Updated 4:20PM EST
Stock indices finished today’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased by 1.07%, 1.07%, and 1.44%, respectively.
The communications sector was the session’s laggard, as it fell by 1.86%. Conversely, the energy sector was the session’s leader, with a gain of 2.05%. In addition, WTI crude oil is up 0.64%, reaching $86.96 per barrel.
Furthermore, the U.S. 10-Year Treasury yield decreased to 3.19%, a decline of more than six basis points. Similarly, the Two-Year Treasury yield also decreased, as it hovers around 3.4%. This brings the spread between them to -21 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to yesterday, the market is pricing in a higher chance of a lower Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 3.75% to 4% decreased to 45.2%, which is down from yesterday’s expectations of 66.4%. In addition, the market is now also assigning a 45.9% probability to a range of 3.5% to 3.75%. For reference, investors had assigned a 28.1% chance Thursday.
Gas Prices Continue to Decline
Last Updated 3:00PM EST
Stock indices are in the red heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 0.8%, and 1.2%, respectively.
The communication sector (XLC) is the laggard so far, as it is down 1.6%. Conversely, the energy sector (XLE) is the session’s leader, up 2.1%.
WTI crude oil is currently hovering around $87 per barrel, trading not too far away from its session low of $86.37 per barrel. The commodity is up 0.5% from yesterday’s close.
Prices at the pump continue to decline. The national average for regular gas is $3.809 per gallon, down from yesterday’s reading of $3.829. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest price can be found in Hawaii, where prices are substantially higher than the national average, at $5.299 per gallon. On the other hand, Arkansas is the state with the lowest gas price, at $3.308 per gallon.
It’s likely that this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation. However, higher rates will destroy demand throughout the whole economy. As a result, lower gas prices might have to come at the cost of a recession.
Average Hourly Earnings Come in Lower Than Expected
Last Updated 12:20PM EST
Stocks are positive halfway into Friday’s trading session. As of 12:20 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.8%, 0.9%, and 0.7%, respectively.
Investors who may be on the lookout for a wage-price spiral may have reason to be concerned after the Bureau of Labor Statistics released its Average Hourly Earnings report, which measures the month-over-month change in wages.
A wage-price spiral is caused when the price of goods increases as a result of higher wages but also leads to workers demanding higher wages as a result of the higher prices. As a result, it creates a perpetual loop of price and wage increases.
A way investors can gauge the presence of a wage-price spiral is by comparing average hourly earnings to inflation. If earnings are higher than inflation, it could be a warning sign that the loop is beginning to form.
Wages grew 0.3% in August compared to the previous month, missing the forecast of 0.4%. The bad news is that the most recent consumer price index saw no growth at 0% month-over-month, which was mostly caused by a decrease in energy and food prices. When looking at the core consumer price index, the last reading was an increase of 0.3% month-over-month, equal to wage growth.
However, the most recent CPI numbers are from July. Economists’ forecasts for August’s inflation numbers paint a potentially different picture. Core CPI, which is probably the better metric to use when comparing to wage growth, is expected to come in at 0.5%, which is higher than wage growth.
If economists are right, or inflation surprises to the upside, we could continue avoiding a wage-price spiral.
Nonfarm Payrolls Beat Expectations
Last Updated 10:00AM EST
Equity markets are in the green 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.3%, 0.3%, and 0.1%, respectively.
On Friday, the Bureau of Labor Statistics released its Nonfarm Payrolls report, which came in better than expected. This report measures the change in the number of individuals employed during the previous month but doesn’t include the farming industry. In August, job growth was 315,000 versus the forecast of 300,000.
The Bureau of Labor Statistics also released payroll data for manufacturing and private nonfarm jobs. Private nonfarm and manufacturing payrolls both beat expectations, coming in at 308,000 and 22,000, respectively.
However, the unemployment rate actually increased to 3.7% from 3.5%, which missed expectations. This was the result of more people entering the workforce, as labor force participation ticked up slightly from 62.1% to 62.4%.
Given that nonfarm payrolls continue to beat expectations, it could signal to the Federal Reserve that it hasn’t tightened enough to stop inflation. This is especially true since the unemployment rate has remained near all-time lows. As a result, it will use this data to justify higher rates if inflation continues to remain high.
Pre-Market Update
U.S. stock futures were muted early Friday morning as investors remain weighed down by the Fed’s comments last week.
Futures of the Dow Jones Industrial Average (DJIA) inched 0.01% higher, while those of the S&P 500 (SPX) gained 0.01% as of 5.48 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.08%.
Futures movements were also influenced by a 10% surge in the shares of retailer Lululemon (NASDAQ:LULU) during the extended trading session Thursday. Lululemon posted upbeat quarterly results that beat consensus estimates.
Stock and bond prices have been under pressure ever since Fed Chair Jerome Powell took any chance of a pivot off the table.
At the end of the regular trading hours on Thursday, the S&P 500, the Dow, and the Nasdaq 100 inched 0.3%, 0.46%, and 0.02% higher, respectively, breaking a 4-day losing streak.
Key Economic Data on the Way
Moreover, investors are also looking forward to some good news in August’s jobs report that is on deck to be released later on Friday. This data will be critical as it is one of the key reports that will be considered by the Fed to determine its policy path for the September round.
Experts expect job growth to have remained strong despite the likelihood that it slowed in August compared with July. However, investors remain uneasy with a nagging possibility that the Fed will maintain its hawkishness even if the jobs growth in August reveals a sharp drop.
Nonetheless, the most important economic data of all, the August consumer price index, is due out on September 13. Market movements are expected to remain uncertain till then.
