Market slides despite jobs report

09/06/22
  • Materials and tech weak as market continued to retreat
  • Stocks initially embrace Friday’s jobs report before descending into red
  • This week: Service economy data, Fed Beige Book, trade balance

The stock market will enter the first full week of September looking to snap a three-week losing streak as investors continued to digest the Fed’s “We will not be sidetracked” inflation-fighting message.

Bulls got a little momentum toward the end of the week, though. After hitting a six-week intraday low on Thursday—at which point the S&P 500 (SPX) was down more than 9% from its August 16 high and had given back nearly 62% of its summer rally—the market pivoted to the upside and followed through on Friday:

Chart 1: S&P 500 (SPX), 6/16/22–9/2/22. S&P 500 (SPX) price chart. Friday flop.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


The headline: Stocks stumble for third-straight week.

The fine print: The market initially responded warmly to Friday’s employment report, which showed the economy added 315,000 jobs in August, down from 526,000 in July but in line with estimates. This solid-but-not-too-strong performance may have temporarily fueled perceptions the Fed may not hike rates as aggressively later this month. But as Morgan Stanley & Co. recently pointed out—in arguing that the “bear market rally” had run its course—the focus on the Fed may be distracting investors from other market risks, including the likelihood that corporate earnings will continue to shrink.1

The number: 56%, the odds (as of Friday) that the Fed will hike interest rates 0.75% after the September 20-21 FOMC meeting, according to the CME FedWatch tool.2 The probability had been above 70% a day earlier.

The quote: “My current view is that it will be necessary to move the fed funds rate up to somewhat above 4% by early next year and hold it there.” Cleveland Fed President Loretta Mester, who added she didn’t think the Fed would cut rates next year.3

The scorecard: Small caps and tech took the biggest steps back last week:

US stock index performance table for week ending 9/2/22. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)


Sector roundup: The strongest S&P 500 sectors last week were utilities (-1.6%), health care (-1.8%), and communication services (-2.4%). The weakest sectors were materials (-4.99%), information technology (-4.98%), and real estate (-3.9%).

Stock movers: On Thursday Forma Therapeutics (FMTX) +51% to $20.24, Nutanix (NTNX) +29% to $22.34, Okta (OKTA) -34% to $60.60, and Getty Images (GETY) -29% to $14.42 (after falling 25% on Monday).

Futures: After hitting a six-week high of $96.94/barrel last Monday, October WTI crude oil (CLV2) traded as low as $85.98 on Thursday, then surrendered a big intraday rally on Friday to close at $86.87. December gold (GCZ2) tested its July lows when it fell to $1,699.10 last Thursday, then bounced on Friday to end the week at $1,722.60. Week’s biggest up moves: November orange juice (OJX2) +6%, October live cattle (LEV2) +1.1%. Week’s biggest down moves: December cotton (CTZ2) -12.3%, October gasoline (RBV2) -8.4%.

Coming this week

This week’s numbers include:

Tuesday: S&P Global Services PMI, ISM Services Index
Wednesday: International trade balance, Beige Book
Thursday: Consumer Credit Change
Friday: Wholesale Inventories

This week’s earnings include:

Tuesday: Guidewire Software (GWRE), HealthEquity (HQY), Coupa Software (COUP), GitLab (GTLB), Path (UiPath)
Wednesday: RH (RH), Nio (NIO), Casey's General Stores (CASY), Copart (CPRT), Dave and Buster's (PLAY), Verint (VRNT), AeroVironment (AVAV)
Thursday: Korn Ferry (KFY), Lovesac (LOVE), DocuSign (DOCU), National Beverage (FIZZ), Zscaler (ZS)
Friday: Kroger (KR)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

End-of-summer blues?

Given September’s track record of stock market underperformance, perhaps it shouldn’t be surprising that the SPX’s typical performance during the shortened Labor Day trading week has been so…so-so.

Since 1971, the SPX has posted a net loss in the four days after the holiday 26 times and rallied 25 times, with an average return of -0.05%.4  Since 1992, the numbers have been a little better—up 16 times and down 14. Most recently, the SPX fell during this four-day period in four of the past five years (including the last two), but rallied in four of the five years before that:

Chart 3: S&P 500 (SPX) net returns for the four days after Labor Day, 1971–2021. Losses less frequent—but bigger—since the 1990s.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


The chart shows the shortened Labor Day week has paralleled September as a whole in a more specific way: Losses have been slightly less frequent over the past three decades, but volatility has been higher—notice that most of the biggest gains and losses have occurred since the mid-1990s.

But one may wonder if bulls tended to be a little disappointed by the unofficial end of summer (or were simply extending the holiday weekend), because the Tuesday after Labor Day was the day of the week least likely to close higher (23 times vs. 28 times lower).

 

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1 MorganStanley.com. The Increasing Risk to Earnings. 8/29/22.
2 CME Group FedWatch Tool (cmegroup.com). Target Rate Probabilities for Sep 21 2022 Fed Meeting. 9/2/22.
3 Bloomberg.com. Fed’s Mester Backs Rates Above 4% Early Next Year, No 2023 Cuts. 8/31/22.
4 Figures reflect S&P 500 (SPX) daily closing prices, 1971–2021. Supporting document available upon request. 8/31/22.

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