Key Takeaways

The S&P 500 enters session on two-day win steak for first time this month, and down 3.4% in August

China takes more measures to stimulate consumer spending, helping send crude back above $80

Best Buy up after beating earnings estimates, saying electronics spending is bottoming

(Tuesday market open) Wall Street is about to run a gauntlet of jobs data, meaning by Friday it could be far clearer if the U.S. labor market is truly slowing.

Things kick off with July job openings this morning, followed by the ADP’s August jobs data Wednesday and initial weekly jobless claims on Thursday. Nonfarm Payrolls data on Friday put the cherry on this week’s jobs sundae. Analysts expect August jobs growth of 170,000, according to Trading Economics, which would represent the lowest monthly gain since December 2020.

Before the focus switches to all the data ahead, there’s breaking news this morning as China takes additional measures to boost consumer spending. State banks are cutting rates on mortgages and deposits, Bloomberg reports. Crude oil clawed back above $80 per barrel early Tuesday in part on hopes of stronger Chinese spending, but recent media reports suggest consumers and businesses there remain cautious.

Meanwhile, U.S. investors now bake in about a 60% chance that the Fed will raise interest rates at least another quarter point by the end of the year, pricing in relatively high probabilities of a move at the November meeting. The likelihood of a rate pause in September, however, remains near 80%. The Fed last paused in June before raising rates in July.

The S&P 500® Index (SPX) enters today’s session up two days in a row for the first time this month thanks in part to a rollback in the 10-year Treasury note yield following Federal Reserve Chairman Jerome Powell’s speech Friday. The question is whether the host of jobs numbers can push yields down further.

That said, all three major indexes are down solidly in August, which some analysts see as a healthy pause from the fierce June and July rally. The SPX is still up a respectable 15.5% for the year, while down 3.4% this month.

Morning rush

The 10-year Treasury note yield (TNX) is barely changed at 4.21%.The U.S. Dollar Index ($DXY) remains near recent highs at 104.19.Cboe Volatility Index® (VIX) futures are steady near 15.15 and down sharply from recent peaks near 19.WTI Crude Oil (/CL) futures are up slightly to $80.56 per barrel.

Stocks in spotlight

Best Buy (BBY) became the latest retailer to report earnings today and delivered better-than-expected top- and bottom-line results, boosting shares in premarket trading.

The company’s press release offered what looks like positive news for the consumer economy, with Best Buy executives stating that there’s light at the end of the tunnel, so to speak, after a challenging stretch in demand for electronic goods like televisions and household appliances. The ebb in demand reflected a “pull-forward” effect that occurred during the pandemic, when consumers accelerated purchases of electronics while they were stuck at home. Best Buy believes this year will be the low point before things begin to improve in 2024.

Salesforce (CRM) and Broadcom (AVGO) are due to report Wednesday and Thursday, in that order. 

What to watch

The focus this morning is the Labor Department’s Job Openings and Labor Turnover Summary (JOLTS) for July, due at 10 a.m. ET. The last JOLTS report showed signs of an easing labor market, though layoffs declined for a third consecutive month. Actual openings totaled 9.582 million in June, down from readings above 10 million last year and in early 2023. Analysts expect a slight rebound to nearly 9.8 million openings in July, according to Trading Economics.

August Consumer Confidence is another key report out at 10 a.m. today. It jumped to a two-year high of 117 in July, and analysts expect a slight pullback to 116 in August, according to Briefing.com. If the number remained strong in August, it could refuel ideas that a solid jobs market is pushing up consumer demand, despite recent conservative holiday outlooks from some big retailers.

Eye on the Fed

The Fed is widely expected to keep its benchmark funds rate unchanged for at least another month. As of this morning, the probability that the Federal Open Market Committee (FOMC), the Fed’s policy-setting arm, will maintain current rates after its September 19–20 meeting is near 80%, according to the CME FedWatch Tool.

Traders are less certain about what the Fed may do beyond September, in part because recent economic data suggest the economy is still growing despite short-term interest rates reaching 22-year highs. Expectations for a quarter-point hike at the FOMC meeting in November have been climbing and reached 58% this morning, compared to 45% a week ago, based on the CME FedWatch Tool.

Talking technicals: The S&P 500® Index (SPX) is flirting with its 50-day moving average near 4,450. An early climb to just under that failed Monday but it might remain a point to watch. Sometimes when an index pushes through a key level, it causes short-covering that leads to further gains.

CHART OF THE DAY: WHEN THE CHIPS ARE DOWN…August has been a tough month for the tech sector (IXT—candlesticks), and semiconductor stocks (SOX—purple line) have generally had the worst of it. This 3-month chart shows the summer rally followed by the August selloff, and shows both finding some buyers recently near the lows. Chips outpaced overall tech yesterday. Data source: Nasdaq.Chart source: thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Breaking the mold: The inverted yield curve (with 10-year Treasury note yields lower than 2-year note yields) has been a fact on the ground for over a year. The yield curve typically inverts because the markets believe there’s reason for interest rates to be lower in the future, a phenomenon associated with recessions because central banks often move rates lower to combat a weak economy. In the past, inversions slowly receded as the two-year yield sank below the 10-year yield. Not this time, at least so far. Instead, the 10-year yield is gaining on the 2-year yield. If the 10-year yield ultimately pushes above the 2-year yield, it would be a relatively unusual way to end an inversion. A rising 10-year yield typically signals a strong economy, so this current trend may point to better times ahead. It’s only the middle-innings and too soon to make any final call. But it might be something to keep an eye on.

Sticking to target: Even if July core Personal Consumption Expenditure (PCE) prices due Thursday are near the 4.1% seen in June, they’d remain well above the Fed’s 2% long-term target. Some economists have suggested the Fed might want to either raise the target or abandon it, noting there’s nothing magical about 2%. But the Fed Chairman sounds committed to that goal and has spoken repeatedly about the importance of keeping inflation expectations in check. Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research, says Powell’s Friday speech “leaned on the hawkish side,” noting his conclusion: “we will keep at it until the job is done.”

Scrap metal goes green: Global miners including Rio Tinto (RIO) and Glencore are looking to city scrapyards for materials that can power the shift to cleaner energy sources, the Wall Street Journal reports. Rio Tinto and Glencore signed deals this year to expand critical metals recycling, betting that auto and consumer electronics manufacturers will increasingly demand sustainably sourced metals. Rio Tinto last month agreed to buy a 50% stake in Matalco, a supplier of recycled aluminum owned by Canada’s Giampaolo Group, for $700 million.

Calendar

Aug. 30: August ADP employment and revised Q2 Gross Domestic Product.

Aug. 31: Weekly Initial Jobless Claims, July Personal Consumption Expenditures (PCE) price index, July Personal Income and Spending, August Chicago Purchasing Managers Index (PMI), and expected earnings from Dell Technologies (DELL), Dollar General (DG), Hormel Foods (HRL), Lululemon Athletica (LULU), and UBS AG (UBS).

Sept. 1: August Employment Report, Construction Spending, and the Institute for Supply Management Manufacturing Index.

Sept. 4: U.S. markets are closed for Labor Day.

Sept. 5: July Factory Orders and expected earnings from GitLab Inc. (GTLB) and Zscaler Inc. (ZS).

Sept. 6: MBA Mortgage Applications Index, Trade Balance for July, Institute for Supply Management Non-Manufacturing Index for August, Fed’s Beige Book.