Stock market today: Stocks give up gains after solid job growth

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The stock market fell short of earlier gains on Friday after the August jobs report came in around what was expected. Data suggests that the Federal Reserve may soon slow the pace of rate hikes, but that’s far from certain.

In the afternoon trade, the

Dow Jones industry average
has slipped 75 points, or 0.2%. That

S&P500
is down 0.3%, and the

Nasdaq Composite
fell 0.6%. All three indices were previously solid in the green.

First the good news:

The report “reduces the likelihood of a 75 basis point hike by the Fed,” wrote Bryce Doty, senior portfolio manager at Sit Investment Associates.

The US economy added 315k jobs in August, slightly below expectations of 318k and a slowdown in growth from 526k in July.

June and July work results have been revised down a total of 107k.

Wage growth in August came in at 5.2% yoy, below expectations of 5.3%.

These results suggest that inflation is becoming somewhat less of a problem. Slower wage growth means firms have less incentive to raise prices, so consumer inflation could slow further. Also, fewer workers means less demand for goods and services.

Markets can now envision a day fairly soon when the Fed will slow the pace of rate hikes designed to curb inflation by dampening economic demand. Fed Chair Jerome Powell said at the annual Jackson Hole Symposium last Friday that the central bank intends to raise interest rates aggressively, spurring bets on a three-quarters point hike at the September meeting rather than a half-point hike.

While the Fed is likely to still do this, the odds are a little slimmer. A three-quarter point hike is now a 58% chance according to price data in the fed funds futures market, up from 75% on Thursday. Even if the Fed does make the bigger rate hike, markets are now wondering if the Fed will slow down after September.

Accordingly, the 2-year Treasury yield has risen to 3.43% over the past month, but is just a hair’s breadth below its multi-year high of 3.52% set earlier this week. This yield attempts to predict what the Fed Funds Rate will be a few years from now. The yield not only reflects expectations of interest rate hikes by the Fed, but could push corporate and household bond yields higher as Treasury yields generally rise. That would slow business and consumer spending.

Therefore, the stock market is pleased that the yield remains below its peak. That’s especially true as the stock market was down nearly 8% from its mid-August peak in the summer through Thursday.

But there is still some hesitation in the Friday market. The S&P 500 is still attempting to significantly break its 50-day moving average — and for good reason. While the jobs report makes an acceleration in inflation less likely, Wall Street awaits the September 13 CPI release. Economists are expecting an annualized August gain of 8.7%, which would be in line with July’s reading, but still below June’s 9.1% reading.

So stock traders don’t want to take too much risk if it’s not yet clear that the Fed could ease rate hikes.

“As for that [jobs report] means for the Fed that I don’t think much will change,” wrote Peter Boockvar, Chief Investment Officer. “They’ll still be discussing 50 or 75 basis points at the next meeting, and the CPI number could be the swing factor.”

Here are some stocks moving on Friday:

Broadcom

(Ticker: AVGO) rose 2.4% after the chipmaker forecast “solid demand” for its fiscal fourth quarter amid steady infrastructure spending. The company expects fourth-quarter revenue of $8.9 billion, above the $8.77 billion expected by analysts.

sleeve

(SHEL) rose 1.7% after it was announced that CEO Ben van Beurden will step down next year, with the board shortlisting four potential successors. Analysts have noted that the departure of the CEO was expected.

NVIDIA

(NVDA) stock fell 1.3% after being downgraded to Neutral from Outperform by Daiwa Securities.

dow
inc

(DOW) stock fell 0.5% after being downgraded to neutral from overweight on JPMorgan.

Foreclosure

(CRM) stock rose 1.6% after being upgraded to Neutral from Sell at Guggenheim.

Write to Jacob Sonenshine at [email protected] and Jack Denton at [email protected]