Falling bond yields–spurred by weak economic data–helped lift stocks to weekly gains.
The Dow Jones Industrial Average advanced 1.43%, while the Standard & Poor’s 500 gained 2.50%. The Nasdaq Composite index increased 3.25% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, picked up 2.71%.1,2,3
Stocks Rise on Slowing Economy
Investor sentiment turned positive last week as signs of economic softness were interpreted as reason for the Fed to hold off on further rate hikes. A downward revision of Q2 economic growth and fresh signs of a cooling labor market reversed the recent rise in bond yield. They helped trigger a stock bounceback following Fed Chair Powell’s speech at Jackson Hole the previous Friday.
It wasn’t all about bad news being viewed as good news, though. A series of solid earnings reports, an announcement by one mega-cap tech name introducing pricing for its AI tools, and fresh inflation data–in-line with market expectations–further boosted enthusiasm for stocks.
Signs of Labor Cooling
Despite historic monetary tightening, the labor market has exhibited remarkable resilience, but last week’s employment data showed a cooling trend.
Job openings declined to their lowest level since March 2021, though they remained above pre-pandemic levels. Meanwhile, a survey of private sector hiring showed a slowdown in hiring, with employers adding 177,000 jobs in August–below the 371,000 added in July and short of economists’ forecast of 200,000.4,5
Finally, the government’s monthly employment report showed the number of nonfarm payroll gains continued to decelerate in August, while June and July estimates were revised lower by 110,000.6
Footnotes and Sources
- The Wall Street Journal, August 25, 2023
- The Wall Street Journal, August 25, 2023
- The Wall Street Journal, August 25, 2023
- The Wall Street Journal, August 29, 2023.
- CNBC, August 30, 2023.
- The Wall Street Journal, September 1, 2023.
