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Weekly Economic Update: September 5, 2023

Presented by Nicholas Wealth Management

No major damage from Jackson Hole Federal Reserve Chairman Jerome Powell’s comments from the Economic Symposium in Jackson Hole, Wyoming, didn’t really change the overall mood of the markets, although he was pretty hawkish. At last year’s summit, Powell basically killed any thoughts of a Fed pause to close out 2022; his comments derailed a strong comeback rally, and we locked in a miserable end to the year. Not so this time. Although Powell reiterated the Fed’s commitment to combating inflation, the markets didn’t freak out this time and instead took his comments in stride. The assumption is no longer that we are expecting rate cuts in the months ahead but that we might expect one more hike of 25 basis points (0.25%) at the November meeting of the Federal Open Market Committee. Powell didn’t say anything to upset that outlook. Markets were further calmed when the second reading of second-quarter gross domestic product (GDP) cooled to 2.1% from the initial reading of 2.4%. In addition, the week also closed with the jobs report in line with expectations. Everything seems to be on course right now, and markets expect the Fed to stay put. Powell didn’t rock the boat enough to worry markets, and we should keep gliding forward as long as the data keeps coming in neither too hot nor too cold. The markets are satisfied with the status quo (at least for the moment), and we have nearly erased the August swoon to return to year-to-date highs. We could have some volatility in September and October, but we may end up in a better place as we head into the holiday season. Jobs slow, inflation lingers Markets opened strong but lost a little steam as the week ended. August was a rough one for equity markets; this was a typical summer month with a negative tinge, so it wasn’t surprising that we sold off amid scant data, light volumes and a vacationing Wall Street soaking up the last of this very hot summer. We saw the decline in inflation bottom out and gas prices climb again. Powell’s comments didn’t alarm markets, but markets are coming to expect an uneasy pause and not a rate cut. The Bureau of Labor Statistics (BLS) non-farm payrolls came in at +187,000 against expectations of 170,000 — not tremendously off the mark. However, the unemployment rate ticked up from 3.5% to 3.8%, which seemed to spook markets after they got off to a strong start on Friday ahead of the long weekend. Payroll gains for June and July were revised down by a total of 110,000, bringing the net gain to 77,000. Private sector payrolls rose 179,000 in August but were revised down by 59,000 in prior months. The 10-year U.S. treasury note continues to hover above 4%, hobbling the market from going higher. Short-term yields are still attractive. The yield curve remains inverted, yet we haven’t seen any signs of recession. It’s all pretty mild as we head into September. Will it stay this way, or is this the calm before the storm? Coming This Week
  • The Labor Day holiday marked the unofficial end of summer to kick off the week.
  • Data this week will include factory orders (Tuesday); mortgage applications and U.S. trade deficit (Wednesday); revised second-quarter productivity and jobless claims (Thursday); wholesale inventories and consumer credit (Friday).
  • We’ll hear from a handful of Fed officials this week. Will their comments reinforce Powell’s remarks from Jackson Hole?
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