The S&P 500 just had its worst week since the regional banking scare in 2023, as a mixed August jobs report failed to revive investor appetite.
In the trading week, the S&P 500 declined more than 4% while the Nasdaq Composite fell nearly 6%. The Dow Jones Industrial Average fell almost 3%. The first week of September also marked the worst weekly return for the Nasdaq 100 since 2022, led by a more than 12% drop in Nvidia shares.
Fresh readings on inflation will be in focus next week, as investors continue to look for clues on how much the Federal Reserve will cut interest rates at its September meeting. Additionally, the first reading of consumer sentiment for September is scheduled to be released on Friday.
In corporate news, Apple's annual iPhone event kicks off on Monday. Earnings results from Oracle (ORCL), Adobe (ADBE), and Kroger (KR) will lead to a relatively quiet week in scheduled company announcements.
The August jobs report showed the US economy added 142,000 nonfarm jobs, and the unemployment rate fell to 4.2% from 4.3% in July. A review of the June and July jobs report showed the US economy added 86,000 fewer jobs than previously reported in those months.
Capital Economics' North America Deputy Chief Economist, Stephen Brown, wrote in a note to clients on Friday that since the report was neither too strong nor too weak, it "doesn't send a clear signal" in the debate over whether the Federal Reserve should cut interest rates by 25 or 50 basis points at the September meeting.
Speeches from Federal Reserve Governor Christopher Waller and New York Fed President John Williams appeared to favor a 25 basis point reduction.
As of Friday afternoon, the market assessed a 25% probability that the Fed would opt for a 50-basis-point reduction in September, down from the 40% seen a day earlier, according to CME's Fed Watch tool.
Goldman Sachs' economics team led by Jan Hatzius thought the Fed's speech on Friday was in line with Goldman's forecast for a 25 basis point cut in September, but indicated "that Fed leadership is open to a 50bp cut at the next meeting if the job market continues to deteriorate."
While signs of a slowdown in the job market have been the focus of market participants in recent weeks, inflation remains an important factor in determining when and how aggressively the Fed will cut interest rates. Wednesday will bring the final reading of inflation before the Fed's policy decision on September 18 with the release of August Consumer Price Index (CPI) data.
Wall Street had expected a 2.6% annual increase for the core CPI, which includes food and energy prices, down from 2.9% in July. Prices are expected to rise 0.2% on a monthly basis, in line with their monthly increase in July.
"A softer CPI report may give FOMC members more confidence that inflation is moving back to 2% sustainably for them to support a 50 bps rate cut," Wells Fargo's economics team led by Jay Bryson wrote in a note to clients on Friday.
