NEWS
Nonfarm Numbers Cause Fear-Filled Friday

The saying “Be careful what you wish for, as you might just get it” seems fitting today, given investors’ reaction to the softening economy they’ve eagerly awaited. Fears of a recession and Fed misstep sparked a major selloff and one of the largest one-day volatility spikes we’ve seen since the pandemic. Let’s see what you missed. 👀

Today's issue covers the odds of a “not-so-soft” landing, conflicting seasonality signals, and $AMC CEO’s wild post-earnings commentary. 📰

Here’s the S&P 500 heatmap. Notably, 3 of 11 sectors closed green, with consumer staples (+0.88%) leading and discretionary (-3.68%) lagging.

And here are the closing prices: 

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ECONOMY
Market Braces For A “Not-So-Soft” Landing

The market and Fed wanted the labor market and overall economy to cool enough to bring down inflation but not enough to cause a recession. So far, monetary policy has helped tow that line pretty well, but today’s labor market data made investors feel the Fed made a misstep at Wednesday’s meeting.

Nonfarm payrolls grew by just 114,000 during July, well below estimates of 185,000 and June’s downwardly revised 179,000 figure. 📊

More importantly, the unemployment rate ticked higher from 4.10% to 4.30%, bringing into play something called the “Sahm" Rule,” which states that the economy is in recession when the three-month average of the jobless level is half a percentage point higher than the 12-month low.

In other words, when the 3-month unemployment rate is above its lowest level from the last 12 months, we may be in a recession. And now it is. 😳

The problem there is that other areas of the economy are still humming along, and the Atlanta Fed’s current-quarter growth estimate still sits above 2%. And it’s technically impossible to have a recession with the economy growing… 🙃

With corporate and household balance sheets in good shape, no systemic asset price bubble in place, and a Fed that has tools available to help buoy growth, economists say a “hard landing” is not likely.

However, a broader slowdown is occurring, and the pace of that slowdown has accelerated. As a result, some analysts felt today’s data reinforced the narrative that the Fed is behind the curve and should’ve cut by 25 bps on Wednesday. 😬

That caused a knee-jerk reaction in the bond market, where Fed Fund Futures now indicate the market has priced in a 50 bp cut in September, another 25 bp in November, and another 25 or 50 bp cut in December.

As we know, the market’s predictions are fickle and change on a dime, so these new estimates are unlikely to come true. That said, the possibility of a 50 bp cut in September is widely viewed as possible if data continues to suggest the Fed needs to make up for this week’s ‘misstep.’ ✂️

U.S. stock market volatility obviously soared amid the selloff. Here’s the roadmap technical analysts are using for the Nasdaq 100, once again indicating a few potential levels of support at current levels or slightly below.

Our next story covers the jump in volatility and what seasonality says could be ahead for the rest of August, so give it a read. 👇