[New York Stock Market] Mixed Close Amid Diverging Tightening End Expectations... S&P's Best Week

Dow·S&P 500 ↑·Nasdaq↓

On the 1st (local time), the three major indices of the U.S. New York stock market closed mixed as investors were torn between relief over the economic indicators released that day and caution over further interest rate hikes. Signals of economic slowdown due to rising unemployment bolstered expectations of a rate pause, lifting investor sentiment, but hawkish remarks from Federal Reserve (Fed) officials exerted downward pressure on the market.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average rose 115.80 points (0.33%) from the previous close to finish at 34,837.71, and the large-cap focused S&P 500 index closed up 8.11 points (0.18%) at 4,515.77. The tech-heavy Nasdaq index ended trading down 3.15 points (0.02%) at 14,031.81 compared to the previous session.

On a weekly basis, the Dow and Nasdaq indices rose about 1.4% and 3.3% respectively this week, marking their largest weekly gains since July. The S&P 500 also gained about 2.5%, recording its best week since June.

By individual stocks, Dell shares surged over 21% after posting unexpected earnings, and leggings maker Lululemon also rallied over 6% on strong results. Pizza chain Papa John’s shares rose nearly 2% after Wedbush upgraded its investment rating to “outperform.” On the other hand, Tesla fell over 5% following news that it cut prices on high-end models priced above $100,000 in China. Broadcom shares dropped over 5%, and Walt Disney declined over 2% amid heightened issues related to its dispute with Charter Communications.

By sector indices, discretionary and staple consumer goods, real estate, telecommunications, and utilities indices declined. In contrast, the energy sector index rose over 2%, and materials sector index increased about 1%. Health care, industrials, financials, and technology sector indices also advanced.

[Image source=Reuters Yonhap News]

Investors focused on employment data, manufacturing indicators, and hawkish remarks from Fed officials that day. The U.S. Department of Labor announced that nonfarm payrolls increased by 187,000 in August compared to the previous month, exceeding market expectations of 170,000. However, the unemployment rate, which had remained low in recent months, rose to its highest level since February last year. The U.S. unemployment rate for August was recorded at 3.8%. Average hourly wages in August rose by only $0.08 (0.2%) to $33.82 compared to the previous month. Experts noted that although nonfarm payrolls exceeded expectations, the significant rise in unemployment and the lower-than-expected wage growth were notable.

This data strengthened expectations that the Fed might slow the pace of tightening. Mohamed El-Erian, chief economic adviser at Allianz, tweeted shortly after the employment report was released, “The August jobs report increases the probability that the Fed will not raise rates further in this cycle.” According to the Chicago Mercantile Exchange (CME) FedWatch tool, 93.0% of rate futures market participants expected the Fed to hold rates steady at the September Federal Open Market Committee (FOMC) meeting, up from 88% the previous day.

However, hawkish comments from Fed officials, noting that inflation remains high and unemployment is still low, applied downward pressure on the stock market. Cleveland Fed President Loretta Mester said at an event in Germany, “There has been some progress in balancing supply and demand in the labor market, but the job market remains strong,” adding, “While job growth has slowed and job openings have declined, an unemployment rate of 3.8% is still low.” This suggested that the Fed would continue its tight monetary policy.

Meanwhile, U.S. manufacturing continued to show weakness. The preliminary August manufacturing Purchasing Managers’ Index (PMI) compiled by S&P Global was 47.9, down from 49 in the previous month, indicating contraction in the manufacturing sector. The Institute for Supply Management (ISM) manufacturing PMI for August was also 47.6, signaling contraction. The ISM manufacturing PMI has shown contraction for ten consecutive months. However, the ISM manufacturing PMI exceeded both the previous month’s figure (46.4) and Wall Street’s forecast (46.9).

According to the CME FedWatch tool, the probability that the Fed will hold rates steady at the September meeting was priced in at 93.0%. The chance of a rate hold through the November meeting was 62.1%, with a 35.6% chance of a 0.25 percentage point hike. For December, the probability of a rate hold was 59.8%, and the chance of a 0.25 percentage point increase was 32.8%.