Market Review: Labor Market Earns its Holiday Weekend
Global equity markets were mixed last week, with relatively flat returns from both U.S. and international markets. Oil prices rose sharply following the resumption of strikes in the U.S.–Iran conflict. Inflation and fiscal deficit concerns pushed U.S. bond yields higher and drove the 10-year U.S. Treasury yield to its highest level since 2023.
The week ended with a better-than-expected payrolls report as job growth exceeded expectations, nonfarm payroll data for June and July were revised upward and the unemployment rate remained steady at 4.1%. Market expectations for a September Federal Reserve (Fed) rate hike decreased last Thursday following Fed member Chris Waller’s dovish comments, but reversed following the strong payrolls report.
Market Outlook
The slate of upcoming global central bank rate decisions includes the European Central Bank (ECB) this week and the Fed later this month, as policymakers navigate an environment of elevated bond yields and inflation. This Friday’s Consumer Price Index (CPI) report will be an important factor in the Fed’s policy rate decision. We remain constructive on equities given healthy underlying fundamentals but expect volatility in the coming months related to geopolitical developments, energy inflation, the U.S. midterm elections and long-term bond yields approaching levels that could serve as a market headwind.
Chart of the Week
Nonfarm payrolls and average hourly earnings provide key insights related to the Fed’s dual mandate of pursuing maximum employment and price stability.
Payroll and wage growth have moderated from their highs in 2022, and now reflect a “low hire, low fire” labor market environment characterized by slowing wage growth.
The Fed will balance the inflation signals from August’s job gains and cooling wages in its upcoming decision.
