The S&P 500 on Friday plunged to its worst weekly performance since early March last year, driven by concerns over economic growth after a slew of soft data during the week, especially on the labor market. That, coupled with historical September weakness, led to a gloomy atmosphere and heavy selling. The hotly anticipated August jobs report was supposed to swing market expectations one way or the other on the size of the expected Federal Reserve interest rate cut later this month, but it ended up sparking a debate instead. The attention now turns to next Wednesday’s consumer inflation report for further clues. For the week, the S&P slumped 4.3%, while the Nasdaq Composite cratered 5.8%. The Dow slipped 2.9%.
The Employment Situation Report for August 2024 showed nonfarm payrolls grew by 142,000, missing the forecast of 164,000. With several reports, including August job numbers, suggesting the US labor market is losing steam, Fed watchers are wondering if the Fed will make a bigger than expected interest rate cut when it meets later this month. The most recent jobs report further affirmed expectations for a cut, so the big question now is how much.
Future Wealth’s View
Though industries like tech and finance have been engaged in mass firings, the broader employment market continues to look stable. But, it is likely that many companies are putting off expansion plans amid high borrowing costs. Current data suggest the US economy isn’t in the process of decelerating to a modestly below average pace. It is an open question whether the economy will continue to decelerate beyond that to a pace that raises more concerns about the stability of the economic expansion.
If we successfully avoid a recession and economic growth continues at a sustained pace, albeit a slower one, we could still see further upside to the stock market from these levels. That said, it is clear to us at Future Wealth LLC, that a rotation from the Magnificent Seven is well underway and we view the recent pullback in the stock market as an opportunity to add to companies that have been unfairly punished by the overall market.