Stocks are heading for a down August as market kicks off September with jobs report
With one more week left to go in August, investors will be wrapping up what has been a downbeat month with more jobs data and macroeconomic reports that could illuminate the path forward for monetary policy. Stocks are headed for a mixed close Friday. This week, traders digested hawkish commentary from Federal Reserve Chairman Jerome Powell, who warned in his address at Jackson Hole, Wyoming , that there could be further rate hikes ahead. They also absorbed blowout results from Nvidia , the key beneficiary this year in the surge of interest around artificial intelligence. The tech-heavy Nasdaq Composite snapped three straight weeks of losses on Friday , as did the S & P 500. Meanwhile, the Dow Jones Industrial Average is the only major average that posted a second-straight losing week. In the week ahead, there could be further positive news for markets with the release of personal consumption expenditures data, a key inflation gauge, on Thursday, and the August jobs report that's set to come out Friday. "We think the Fed will continue to or will eventually figure out that we're in a massive decelerating job market, and that will allow them to not raise rates anymore. And that's bullish for the market," said Infrastructure Capital Management CEO Jay Hatfield. "And so we would play next week as mildly bullish." Regardless, the major averages are set to close a losing month as higher yields and Fitch downgrades weighed on equities this month. The Dow Jones Industrial Average lost more than 3% in August. The S & P 500 is lower by nearly 4%. Meanwhile, the Nasdaq Composite suffered the worst of the indexes. The tech-heavy index slid more than 5%. Expectations of easing The August jobs report that's set for release on Friday, Sept. 1 is expected to show U.S. nonfarm payrolls will have expanded by 175,000 this month, according to economists polled by FactSet. That would be a decline from July, when the U.S. economy expanded by a weaker-than-expected 187,000 . Many investors will be especially focused on the services sector. "Further cooling in the labor market and the services sector," said Brian Ellis, portfolio manager at Morgan Stanley Investment Management. "That's really important for continued progress on the inflation front." The labor report will be preceded by the July personal consumption expenditures, or PCE, report on Thursday. The inflation gauge closely followed by the Federal Reserve rose by 0.2% in June . In that month, the rate for headline inflation was the lowest it had been since March 2021. If both reports show easing inflation, it could show that the Fed is that much closer to the end of its tightening cycle. That would be a boon for investors, especially after Powell, in his address at Jackson Hole, Wyoming on Friday, reiterated a tough stance against inflation and indicated further rate hikes could be ahead. "Although inflation has moved down from its peak — a welcome development — it remains too high," Powell said in his address. "We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective." No more hikes? In fact, many investors expect that the Federal Reserve is probably done hiking rates here as policymakers await the effects of higher rates on the real economy. Over the course of the past year, the central bank has raised its funds rate to a target range of 5.25% to 5.5%. "We think the Fed is probably done here," Morgan Stanley's Brian Ellis said. "We think that both growth and inflation will continue to slow as we see monetary policy working its way to the system. I think the Fed knows that there are lags in policy, and I think that is proving to be particularly true for the tightening cycle." "So, you know, there's a higher bar for them to tighten more," Ellis added. He said that he expects a soft landing for the economy. According to the CME Fedwatch Tool, the likelihood that the Federal Reserve will pause in September stands at about 80%. Meanwhile, in November, traders are betting on a roughly 46% chance the central bank will hike rates then. However, some market participants doubt that the Fed will cut any time soon even if they're done — or close to being done — hiking rates. They cited inflation that is still far above the central bank's 2% range. "I don't think the cuts are on the table anytime soon," said Ben Kirby, co-head of investments for Thornburg Investment Management. "Having been burned, having gotten the call wrong in the last couple of years, I think they're likely to err on the side of cautiousness to make sure that inflation really is stamped out before they start to re-stimulate." Higher bond yields Next week will be the last week before the Labor Day weekend, after which traders will return to their desks after spending their summers away. Investors are turning the page on a downbeat month for equities in August, but September is also historically a poor month for stocks. In fact, traders expect that elevated bond yields will continue to compete with equities in the coming month. Increasingly, investors are looking for opportunities in income as they deal with the possibility of higher rates for longer. "August was the month of bond yields going higher, and investors and equity markets pulling back and saying, 'wait a second, if I can get a 5% on cash, that's actually competing with my equity allocation. And so, maybe I need to take my equity allocation down and, and just sort of lock in that 5%,'" said Thornburg's Kirby. "As we go into September, that force of investors continuing to say, 'I want to take my risk-free 5%' instead of a risky 8% or 9% possible in stocks, I think that can definitely continue kind of throughout the month of September," he added. Week ahead calendar Monday, Aug. 28 10:30 a.m. Dallas Fed Index (August) Tuesday, Aug. 29 9 a.m. FHFA Home Price Index (June) 9 a.m. S & P/Case-Shiller comp.20 (June) 10 a.m. Consumer Confidence (August) 10 a.m. JOLTs Job Openings (July) Earnings: Catalent , Best Buy , J.M. Smucker Co. , Hewlett Packard Enterprise , HP Wednesday, Aug. 30 8:15 a.m. ADP Employment Survey (August) 8:30 a.m. GDP Chain Price Second Preliminary (Second Quarter) 8:30 a.m. GDP Second Preliminary (Second Quarter) 8:30 a.m. Wholesale Inventories Preliminary (July) 10 a.m. Pending Home Sales (July) Earnings: Salesforce , Costco Thursday, Aug. 31 8:30 a.m. Continuing Jobless Claims (8/19) 8:30 a.m. Initial Claims (8/26) 8:30 a.m. Core PCE Deflator (July) 8:30 a.m. PCE Deflator (July) 8:30 a.m. Personal Consumption Expenditure (July) 8:30 a.m. Personal Income (July) 9:45 a.m. Chicago PMI (August) Earnings: Hormel Foods , Dollar General , Campbell Soup , Broadcom Friday, Sept. 1 8:30 a.m. August Jobs Report (August) 9:45 a.m. Markit PMI Manufacturing Final (August) 10 a.m. Construction Spending (July) 10 a.m. ISM Manufacturing (August)