Jobs Data Spooks Markets

Equity markets were on track last week for a 3rd consecutive weekly gain until Friday's Job's Report.

While the July report was much lower than expected (+73,000 jobs vs. +106,000), the larger concern was the revision to June's number. The previous month's 147,000 jobs gained that was reported was revised lower to only 14,000 jobs. The report caused equities to sell off more than 1% on Friday over concerns the labor market is weakening. At the same time, futures on a September rate cut flipped from a 55% probably of no rate cut on Thursday to an 85% probability of a 25 basis point rate cut on Friday.

Other reports during the week provided evidence that economic growth has rebounded.

On Wednesday of last week, 2nd quarter GDP surprised economists by growing +3.0% versus the +2.5% expectation. This was a strong rebound from the negative print in the 1st quarter. Of those trade deals that have been announced, future investment in the U.S. by foreign entities could provide a boost to economic growth, although the timing of investment is still uncertain.

Labor market weakness could cause the Fed to get off the sidelines and resume rate cuts at the

next FOMC meeting. Last week's meeting revealed two dissenting governors - Bowman & Waller - who recommended a 25 basis point rate cut. The last time two dissented with the board was 1993. After last month's increase in inflation, the Cleveland Fed estimates that July CPI will come in at +0.2%, but that year-over-year CPI will remain flat at 2.7%. If we only look at essentials - phone bill, cereal, gas, coffee - the disparity between the Fed Funds Rate and Essential Inflation is the widest since the 3rd quarter of 2007. This could put pressure on the remaining FOMC members to also recommend a 25 basis point rate cut next month. Equity futures appear relatively calm this morning, but seasonality suggests the next couple of months could be a bit bumpy.

---

Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.