How big will the Fed rate cut be? Watch the jobs report
For investors, August was like a pretty wild rollercoaster ride. You start your trip in a small car climbing up and up and up. At the top, everything suddenly gets very silent.
When gravity starts to do its thing, everybody screams and screams until finally the coaster glides smoothly into the station.
It's a pretty good metaphor for what happened to financial markets during the month.
The market began the month with recession fears stoked by a weaker-than-expected jobs report, followed immediately by a near panic. Some of the panic was those recession fears. The bigger issue was instability in Japanese markets that briefly spread around the world.
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Some stocks just imploded, like Super Micro Computer (SMCI) , which fell 19.9% in a day. Or Intel (INTC) , which just fell and fell and fell.
For many investors, the experience was not fun. The Dow Jones industrials fell 2,100 points in three days, the biggest being a 1,033-point thud on Aug. 5, leaving the Dow at 38,703.27.
And then the market turned.
From there, the Dow jumped 7.4% and ended the month up 1.8%. The Standard & Poor's 500 Index, off 6.1% in those first awful days, roared back to a 2.3% gain for the month. The Nasdaq Composite fell 5.8% between Aug. 1 and 5. Its gain for the month: a modest 0.7%.
For all that noise, August ended up being a little month in terms of the numbers when all was said and done.
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Powell delivers good news
But there was a moment, in fact, to mind what was going on: When Federal Reserve Chairman Jerome Powell finally told an assemblage of central bankers in Jackson Hole, Wyo. — and the world, "The time has come for policy to adjust." Meaning interest rates are coming down.
That's where September starts. The Fed meets Sept. 17-18 and almost certainly will cut its key federal fund rate from 5.25%-to-5.5%, the level in place since July 2023.
The conventional wisdom is the first cut will be to 5%-to-5.25%. Not a big cut but the first cut since July 2023.
Credit markets have already pushed the yield on the government's 2-year Treasury note down 22% from 5.1% in April to 3.92% on Aug. 30.
The 10-year Treasury yield, a key determinant of mortgage rates, has dropped 21% from just under 5% last October to 3.91% as of Aug. 30.
Mortgage rates are now below 6.5%, although national reports on housing suggest they haven't fallen far enough to make buyers brave enough to make offers.
There probably will be more cuts over the next year, and the behavior of Treasury yields are signals markets already are expecting them.
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How the jobs report will affect the Fed
The jobs report, due Friday before the market open, is expected to show an employment rate of 4.2%, down a little from July's 4.3%. Non-farm payrolls are expected to rise by 134,000. A larger-than-expected unemployment rate will put more pressure on the Fed to cut rates. Ditto if the payroll employment number comes in less than expected.
If the numbers are stronger than expected, the Fed will stick with a small September cut.
These are squishy numbers, to be sure, subject to substantial revisions because of the difficulties in collecting data and making sense of them. But markets react to them anyway.
Earnings seasons is ending, but one report is a big deal
The report that will stand out this week comes from Broadcom (AVGO) on Sept. 5. It's a big maker of semiconductors and a developer of software. Broadcom is fast building a presence in artificial intelligence. Analysts expect $1.20 in earnings on revenue of about $13 billion.
The shares are up nearly 46% this year.
Other companies reporting this week include:
Cybersecurity company Zscaler (ZS) . The company offers cloud-based services to protect enterprise networks and data.
Hewlett-Packard Enterprise (HPE) , the data-center business.
Athletic-equipment retailer Dicks Sporting Goods (DKS) .
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Tech did not dominate markets in August
Overall, technology is still the biggest sector for stocks. The S&P 500 index has risen this year, thanks in large part to the 26.5% gain its information technology sector has enjoyed. Think Nvidia (NVDA) , Microsoft (MSFT) , Apple (AAPL) and others.
But in August, the sector was up just 1.16%. It was down 2.1% in July.
The big winners includes Consumer Staples, up 5.8%, Real Estate, up 5.6%, Health Care, up 4.4% and Utilities, up 4.3%. Evidence, perhaps of a broadening economy.
The top S&P 500 companies for the month:
Kellanova (K) , maker of snack foods as well as the international versions of Kellogg's Rice Krispies and other cereals, up 38.6%.
Cybersecurity company Fortinet (FTNT) , up 32.2%.
Axon Enterprise, (AAXN) , best known for making Tasers, up 21.7%.
Starbucks (SBUX) , up 21.3% after hiring Brian Niccol as its new CEO.
Clorox (CLX) , up 20%. The home products company's profits are offsetting weak sales.
The S&P 500's worst performers: Super Micro Computer (SMCI) , down 37.6%; Vaccine maker Moderna (MRNA) , down 35.1%; discount retailer Dollar Tree (DLTR) , down 31.1%; Intel, down 28.3%, and Walgreens Boots Alliance (WBA) , down 22.1%.
Tops in the Dow: Walmart (WMT) , up 12.5%, Nike (NKE) , up 11.3%; and McDonalds (MCD) , up 8.8%.
The losers: Chevron (CVX) , down 7.8%, Boeing (BA) , down 8.9% and Intel.
The three most valuable companies saw their stocks struggle. Apple was up just 3.1%. Microsoft was down 0.3%. Nvidia (NVDA) was up 2%.
Meta Platforms (META) rose 9.8%. Google parent Alphabet (GOOGL) was off 4.8%. Tesla (TSLA) dropped 7.7%.
Related: Veteran fund manager sees world of pain coming for stocks