Stocks just had their worst month of the year and the start of a new quarter won’t bring much relief.
September’s jobs report highlights the week of economic data after a last-minute deal saved the U.S. from a government shutdown. Important updates on activity in the manufacturing and services sectors of the economy, as well as the latest information on job vacancies, will highlight the economic calendar.
On the earnings side, results from Constellation Brands (STZ) and Levi’s (LEVI) will highlight a light week of quarterly reports.
After two consecutive negative months, stocks are starting October. In the third quarter, the Nasdaq Composite (^IXIC) fell 4.1%, while the S&P 500 (^GSPC) fell 3.6% and the Dow Jones Industrial Average (^DJI) fell 2.8%.
In his September press conference, Fed Chairman Jerome Powell noted that supply and demand “continue to come into better balance” as signs of a weakening labor market have emerged in recent months.
Investors and Fed watchers will be watching for further signs of this as the labor market comes into focus in the coming week.
The September jobs report is expected to show that 168,000 nonfarm jobs were added to the U.S. economy last month and unemployment fell to 3.7%, according to Bloomberg data. In August, the U.S. economy added 187,000 jobs while the unemployment rate unexpectedly rose.
The August report also brought a significant increase in the labor force participation rate, which reached 62.8%, the highest level since February 2020.
“As high interest rates continue to dampen labor demand, we expect the labor market to continue to cool,” Wells Fargo’s team of economists wrote in a note on Friday. “We forecast the U.S. economy added 150,000 jobs in September, down from 187,000 in August.”
The automotive sector will continue to be in focus in the coming days as the United Auto Workers (UAW) expanded its strike on Friday. The UAW joined additional workers in the strike at Ford (F) and GM (GM), but spared Stellantis (STLA) as negotiations improved last week.
The story goes on
Auto companies are also expected to report quarterly deliveries next week. Tesla (TSLA) is expected to report 456,000 deliveries, down from around 466,000 a quarter ago.
“While the situation for suppliers may continue to evolve so far, the impact of the strike actually appears to be much more modest than initially expected,” JPMorgan auto equity analyst Ryan Brinkman wrote in a Sept. 25 note.
He added: “While the situation could clearly deteriorate, the increasing headwinds appear to pose a greater risk to 4Q at this point.”
President Joe Biden joins striking United Auto Workers on the strike line in Van Buren Township, Michigan, on Tuesday, September 26, 2023 (AP Photo/Evan Vucci)
Higher oil prices and 10-year Treasury (^TNX) yields, which are near 16-year highs, have weighed on stocks in recent weeks as the Fed’s longer-term interest rate policy pushed stocks lower through the end of September has.
Strategists now appear to be divided over what exactly a sustained advance will mean for stocks over the rest of the year.
Marko Kolanovic, chief market strategist at JPMorgan, notes that tighter fiscal policy is just one of several headwinds as growth in China turns out to be slower than expected and the American consumer continues to be squeezed.
“In the medium term, we remain negative and consider the risk-reward ratio of equities and credit spreads to be unattractive compared to a fixed-interest alternative (cash),” Marko Kolanovic wrote in a note to clients on Wednesday. “This is likely to remain the case as long as interest rates remain in a highly restrictive range and the overhang of geopolitical risks remains.”
However, Bank of America’s equity strategy still sees upside potential versus the S&P 500, particularly the equal-weighted index, which places less emphasis on large-cap technology stocks whose valuations have already skyrocketed.
“We don’t think the higher interest rate environment is that bad for stocks,” Ohsun Kwon, equity and quantitative strategist at Bank of America, told Yahoo Finance.
He added: “What is really worrying the market is not really the level of interest rates, but rather the volatility of interest rates. Once volatility dies down, I think stocks can still work.”
Weekly calendar
Monday
Merits: No significant income
Economic data: S&P Global US Manufacturing PMI, September, final (48.9 expected, 48.9 previous); Construction spending MoM, August (+0.6% expected, +0.7% previous); ISM production, September (47.8 expected, 47.6 so far)
Tuesday
Merits: McCormick (MKC), Cal-Maine Foods (CALM)
Economic data: JOLTS job openings, August (8.9 million expected, 8.8 million previous);
Wednesday
Merits: Tilray (TLRY)
Economic data: MBA Mortgage Applications, Week Ending September 29 (-1.3% Previous); ADP employment change, September (150,000 expected, 177,000 expected); Factory orders, August (+0.2% expected); Durable goods orders, August final (+0.2% previous); ISM Services Index, September (53.5 expected, 54.5 previous); S&P Global US Services PMI, September, final (50.2 expected, 50.2 previous); S&P Global US Composite PMI September Final (previously 50.1)
Thursday
Merits: Conagra (CAG), Constellation Brands (STZ), Levi’s (LEVI)
Economic data: Challenger YoY Job Cuts, September; Weekly initial jobless claims, September 30 (previously 204,000)
Friday
Merits: No significant income
Economic data: Non-farm payrolls, September (+170,000 expected, +187,000 previous); Unemployment rate, September (3.7% expected, previously 3.8%); Average hourly wage month-on-month, September (+0.3% expected, +0.2% previous); Average hourly wage year-on-year, September (+4.3% expected, +4.3% so far); Average weekly hours worked, September (34.4 expected, 34.4 previous); Labor force participation rate, September (previously 62.8%)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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