By Rick Schwerd | September 6, 2024
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on September 20.
Soft Jobs Report
The U.S. economy added 142,000 jobs in August, and the totals for the previous two months were revised downward. The pace of job growth has slowed significantly over the last several months. Much of the jobs being added are in government, healthcare and education, which supports the conclusion that the economy is slowing. The unemployment rate ticked down a tenth-of-a percent to 4.2 percent, which was expected.
The number of job openings dropped to 7.67 million and is now back to a pre-pandemic range. Job openings peaked in March 2022 at more than 12 million. All this paints a picture of a labor market that is much more in balance. The overheated jobs market coming out of the pandemic was a significant contributing factor to the high inflation we experienced.
Fed Set to Begin Cutting Interest Rates
The Federal Reserve has indicated that they will begin rate cuts at their upcoming meeting on September 17-18. The question has been whether they would cut by a quarter-point, or by half. We would prefer a half-point cut at this time, given the current restrictive monetary policy. However, we believe that this labor market report was not weak enough to push them past a quarter-point drop. This would set them up to cut a quarter-point at subsequent meetings, with the ability to do more if the economy shows signs of weakening further.
Volatility Continues
Volatility in equity markets has continued, and we remain cautious in the near-term. On Tuesday, equities had a sharp drop led by Nvidia and other large-cap techs stocks. The company lost 9 percent that day after Bloomberg reported receiving a subpoena from the Department of Justice as part of an antitrust investigation. The sell-off resulted in the loss of approximately $279 billion in market value, breaking the record for a one-day loss by an individual company. Nvidia later stated that they did not receive a subpoena.
As we said in our last update, September through early October is a seasonally weak period for stocks, and uncertainty regarding the election may be beginning to weigh on markets. However, we believe we are in the midst of a secular bull market with the prospect of monetary easing and artificial intelligence-driven productivity gains acting as tailwinds.
What About the Bond Market?
Where does the slowing economy and pending rate cuts leave the bond market? We expect short-term rates to come down as the Fed cuts rates. However, intermediate and long-term rates have already dropped significantly. The benchmark 10-year U.S. Treasury has fallen a full percentage point from April of this year, and now sits at 3.71 percent. Outside of a sharp recession, which is not anticipated, we expect intermediate and longer-term rates to remain in their current range without falling much further.
With short-term rates coming down and longer-term rates remaining range-bound, this sets up an unwinding of the inverted yield curve and a return to a “normal” yield environment, where shorter maturities have lower yields and longer maturities have higher yields. This is generally beneficial for financial firms.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Glens Falls National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.