Employment shifts market expectations
The US lost 23,000 jobs in July, and unemployment still went down. Wall Street closed at record highs. The missing piece is inflation, and this week it starts to move.
The first week of August was marked by new records on Wall Street, a corporate earnings season that continues to surprise, and, most importantly, a U.S. jobs report that changed expectations about the Federal Reserve’s next decisions.
While major stock markets maintained their positive momentum, investors began paying closer attention to signs of an economic slowdown and what they could mean for interest rates.
A Jobs Report That Surprised the Market
The biggest event of the week came on Friday with the release of the official U.S. employment report.
The economy lost 23,000 jobs in July, well below market expectations of an increase of around 80,000. In addition, employment figures for the previous two months were revised lower.
The unemployment rate, however, fell from 4.2% to 4.1%. Overall, the data showed a labor market showing signs of slowing, although it remains far from indicating broad weakness.
What Does This Mean for the Federal Reserve?
A weaker labor market could reduce pressure on the Federal Reserve to keep interest rates elevated.
Following the report, expectations for a rate hike in September declined considerably. For markets, this was positive, as lower interest rates can support stocks and reduce borrowing costs.
However, one important variable remains: inflation. This week, investors will be watching new inflation data closely to determine whether there is enough room for a change in monetary policy.
Wall Street Reaches New Highs
Despite concerns about the economy, U.S. markets had a positive week.
The S&P 500 ended the week at a new all-time high, while the Nasdaq posted strong gains. The technology index gained more than 5% during the week, supported by optimism around corporate earnings and artificial intelligence.
Corporate earnings continue to be one of the market’s main sources of support. So far, around 85% of S&P 500 companies that have reported earnings have exceeded analysts’ expectations.
Artificial Intelligence Remains in Focus
Artificial intelligence continues to be one of the major investment themes.
Large technology companies are maintaining significant investments in data centers, semiconductors, and cloud computing services. However, investors are beginning to demand more than just growth: they want to see these investments translate into higher revenues and profits.
The performance of some technology stocks during the week highlighted this. Even companies with strong results can see their shares fall if their outlook does not meet the market’s high expectations.
Oil Remains Volatile
Oil prices also experienced significant movements during the week due to developments involving the United States, Iran, and the Strait of Hormuz.
On Thursday, Brent crude rose 3.8% to $82.49 per barrel, while WTI gained 2.75% to $77.29. Concerns about energy supplies once again put oil prices and inflation on investors’ radar.
What Will Wall Street Be Watching This Week?
Investors will be paying close attention to:
New U.S. inflation data.
Further signals about Federal Reserve interest rates.
The continuation of corporate earnings season.
The performance of artificial intelligence-related stocks.
Oil prices and developments surrounding the Strait of Hormuz.
The week left markets showing continued strength, but also receiving mixed signals about the U.S. economy.
Corporate growth and the momentum behind artificial intelligence continue to support Wall Street, while a weaker labor market could create room for a less restrictive monetary policy.
Now, attention turns to inflation. The next set of data will be important in determining whether expectations for lower interest rates can continue to support the market in the coming weeks.
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Sources: Bloomberg, Reuters Energy, CNBC Markets, ISM Manufacturing Report