As investors navigate the shortened trading week in the US equity markets, the spotlight will be on the upcoming nonfarm payroll data, which is anticipated to play a crucial role in shaping the Federal Reserve's monetary policy. Historically, September is not kind to stocks, often marking the worst performance month of the year. In July, the nonfarm payroll numbers saw a sharp decline, plummeting to 114,000.
This drop was largely attributed to the fallout from Hurricane Beryl, which disrupted data collection efforts. Looking ahead, analysts at Daiwa America project a "slight pickup" in the payroll figures for August, estimating an addition of around 170,000 jobs. This number is notably lower than the average increase of 218,000 seen in the first half of the year.
Despite this recovery, they assert that the unemployment rate is likely to remain steady at 4.3%, a level not observed since October 2021. However, the possibility of a slight decrease from July's figures cannot be ruled out. Furthermore, the average hourly earnings growth within the nonfarm data, set to be released on Friday, is expected to hover close to the historical average of roughly 0.3% month-over-month.
Another significant report, the Job Openings and Labor Turnover Survey (JOLTS) for July, is due on Wednesday. This data will offer additional insights into the health of the labor market, especially as the anticipation of rate cuts looms. In terms of manufacturing, the ISM (Institute for Supply Management) release, scheduled for Tuesday, is likely to indicate a continued modest contraction for August, marking the 21st month of contraction out of the last 22.
These conditions are driven by tight financial environments, high borrowing costs, and diminished demand, as highlighted in Daiwa's analysis. Meanwhile, the ISM services index is projected to remain stable at 51.4 on Thursday, further supporting the notion that the US economy is navigating growth in the third quarter at a relatively robust rate. September stands out historically for its poor performance when it comes to stocks.
According to data from S&P Dow Jones Indices, this month has averaged a decline of 1.2% since 1926, with stocks advancing only 44% of the time during this period. In the latest earnings reports, companies within the S&P 500 have shown a year-over-year revenue increase of 6.6% for the second quarter, although sales remained a mere 0.3% shy of record highs.
Forecasts for the third and fourth quarters have largely steadied, though predictions for earnings in 2024 suggest a substantial potential increase of over 11%, according to S&P analysts. The market interests and potential shifts in policy remain at the forefront as investors prepare for what lies ahead amid these indicators.
The tension between economic growth and inflation control will be crucial to monitor as September unfolds..