Jobs Report Jitters – is Recession Looming?
Chart: QQQ 1-year daily
The markets have sold off hard in the last week or so. As we mentioned in the last Wealth Watch, a pullback was warranted since the market had become way overbought. With the jobs numbers this morning, what should have been a normal pullback turned into a selloff that hit some of our stops and moved a portion of equities to cash. Investors are now worried. Are we heading for a recession?
The markets will probably trade a bit lower and slop around, scaring everyone before finding a base and starting to move higher. We will strive to re-buy on the turn back up. There will be some nice opportunities that come out of this selloff. Is the bull market over? In our opinion, no. Selloffs like this happen on a somewhat routine basis, and there is still a lot of road left in this year’s market.
Chart: TLT 1-year daily
The US unemployment rate unexpectedly rose from 4.1% in June to 4.3% in July. The economy added 114,000 jobs, less than economists had predicted. The new jobs report on Friday comes after the Fed decided to hold rates steady. The unemployment rate unexpectedly jumped in July, climbing to 4.3% from 4.1%.
US nonfarm payrolls also came in light, with the economy adding 114,000, missing the consensus expectation of 176,000. The Bureau of Labor Statistics also revised May and June job additions lower. The weak report all but confirms the Federal Reserve will cut interest rates in September, an outcome that was already a near 100% probability.
During a Wednesday press conference, Fed Chair Jerome Powell said of the outlook for rate cuts later this year that he “can imagine a scenario in which there would be everywhere from zero cuts to several cuts, depending on the way the economy evolves.”
“The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market,” Powell said. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”
