Weak Labor Market Data, Mixed Inflation Data, and AI Earnings
Photo Credit: Katie Moum, Unsplash
Weekly Market Recap for September 12th
This week, markets traded higher with gains across equities and bonds. The S&P 500 advanced alongside the Russell 2000 and NASDAQ, with factor leadership favoring Momentum and High Beta over Low Volatility and Value. Technology outperformed, joined by Health Care and Real Estate, while Financials traded lower and Energy and Consumer Staples were flat. International equities outperformed the S&P with emerging leading developed as the USD weakened. Treasury yields declined across the curve, most notably on the long end, causing long-duration Treasuries to outperform. Within corporate credit, IG outperformed HY as credit spreads held steady. Oil traded lower, while gold hit a record high. The VIX was flat, and bond market volatility declined after the August jobs and inflation reports increased the probability of a rate cut next week.
S&P 500 Index (Last 12 Months)
S&P 500 Technical Composite (Last 24 Months)
US Risk Demand Market Indicator
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S&P 500 Valuation Matrix
Key Takeaways
#1 - Labor Market Softens
The August jobs report showed continued softening in the labor market. Payrolls rose by just +22,000, the fourth consecutive month below +100k. Revisions to June and July trimmed prior gains by -21k, pulling the 3-month average down to +29k. Job gains were concentrated in health care and social assistance, while losses in federal government, wholesale trade, manufacturing, and mining pointed to softer demand and government hiring freezes. The unemployment rate rose to 4.3%, the highest since 2021, and the share of long-term unemployed (>27 weeks) hit a three-year high. Wage growth remained solid at +0.3% m/m and +3.7% y/y, outpacing inflation and supporting modest real wage growth.
Implication: The data indicate the labor market is losing momentum, strengthening the case for rate cuts.
Monthly Job Growth Continues to Slow
Unemployment Rate Rises to 4.3%
#2 - Annual Payroll Revisions
This week's annual payroll revisions showed the U.S. added -911k fewer jobs over the past 12 months than initially estimated. The negative revision indicates hiring weakened earlier and more substantially than previously reported. While backward-looking, the revision aligns with other recent data signaling a slowdown. Weak hiring and firing activity point to a frozen job market, and economic growth is losing momentum, as seen in the Q2 core GDP slowdown.
Implication: The downward revision points to a weaker labor market foundation, signals slowing growth, and boosts the case for Fed cuts.
#3 - August Inflation Data Mixed
August inflation data was mixed. Headline CPI rose +0.4% m/m, pushing the annual rate to +2.9%, the highest since January. Meanwhile, core CPI held steady at +0.3%, with the year-over-year rate at +3.1%, the highest since February. On the producer side, headline PPI fell -0.1%, largely due to a -1.7% drop in trade services margins, which reversed the prior month’s spike. The unexpected decline in trade margins hints at softer demand and limited pricing power, which could weigh on earnings if companies absorb tariffs. Supporting this thesis, core PPI, which excludes energy, food, and trade, rose by +0.3% m/m, showing that the underlying price pressures remain.
Implication: The market reacted positively while inflation progress stalled, and the data suggests the impact is small and contained.
Headline CPI Rises, Core CPI Remains Sticky
Core PPI Shows Underlying Price Pressures Remain
#4 - Oracle Reignites AI Trade
Oracle’s earnings report this week reignited the AI trade, showing that AI infrastructure is both real and accelerating. While overall revenue was solid, the highlight was a $455 billion backlog of contracted cloud services, fueled by several multi-billion-dollar AI infrastructure deals. This backlog’s scale and growth trajectory underscore the accelerating demand for enterprise AI.
Implication: Oracle’s results reinforce the AI capex theme that has driven economic growth, earnings growth, and stock market gains.
#5 - What to Watch Next Week
Next week’s calendar is headlined by the Fed’s meeting, where markets expect the central bank to resume its rate-cutting cycle. The meeting is bookended by several key August data releases, with retail sales and industrial production on Tuesday, housing starts and building permits on Wednesday. Thursday’s jobless claims will draw attention after this week’s surprise jump. The week wraps up with a major options expiration on Friday, which could trigger short-term volatility as dealers adjust or unwind hedges tied to expiring contracts.
Weekly Jobless Claims Jump Unexpectedly
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
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