Let's get to the big story breakdown.
Well, Friday's non-farm payrolls report for August could be the deciding factor when it comes to the near-term rate outlook for the Fed.
While there are expectations of a stock rating, if it's too strong, it could cloud rate cut odds.
Now in a holiday shortened week, Jolts ADP data condensed into the 4 day week.
Also, the Fed's Beige Book set for release on Wednesday afternoon.
Well, September gets underway, all eyes are on the Fed on top of Fed speakers, the Senate banking conference.
Nomination hearing for Stephen Moran will be on Thursday.
Joining me as we kick off a new trading week is Michael Reinking, senior market strategist at the New York Stock Exchange.
Michael, happy Tuesday.
Thank you so much for joining me.
Good morning.
Thanks for having me.
Well, we are looking at to see a red for futures on the Dow, S&P 500, as well as Nasdaq.
So what's going on as we kick off, I think it's a little bit of the reputation of September preceding it and you know the markets taking on kind of the the emotions of everybody coming out of the long holiday weekend, the end of the summer, the start of a school year.
So we're going to have a little bit of a risk off scenario to start, to start the week.
Look, September, we've talked about and it's pretty well known as the kind of worst month for equity markets, from a return perspective, it's the only month during the year that has a negative return profile kind of going back over the last 70 years.
We're down in 4 of the last 5 years by an average of about 4%.
Um, you know, kind of in the S&P 500 and what we're seeing this morning is kind of there's not one headline that's kind of driving the action.
I think there's kind of a multitude of things.
Friday we did see some weakness, you know, kind of really kind of saw kind of the AI trade start to get undercut kind of with the announcement from kind of Alibaba, right?
And and then you kind of over the weekend we're seeing yields.
Longer dated yields move pretty significantly higher around the globe.
That's feeding into the US Treasury markets.
So now you have the 30 year yield, you know, testing that 5% level, as you pointed out, 10 year yields are around 4.3%.
And so you're starting to see some acceleration from that side of things, and that seems to kind of have shaken markets.
Yeah, Michael, one thing we have to keep in mind is that it's already Tuesday, so we have a lot.
Of jobs data coming out this week, including ADP jolts and non-farm payrolls as we make our way through the week in terms of labor market data, what are you watching out for?
Yeah, I mean, clearly Friday's jobs report is the most important, you know, in terms of in terms of other economic data we have construction spending and ISM manufacturing today.
Tomorrow the jolts jobs openings, I think kind of the thing that I like to pay attention to within that report is looking at separations and.
Locations to see if there's any kind of signs of companies beginning to lay people off those those those readings have been very, very subdued over the last year or so and well below historical averages and then obviously Friday's report, the street is looking for about 75,000 jobs to be added to the economy and we all kind of understand, you know, kind of that the break even.
In terms of you know the job creation that we need with the immigration policy is much lower than it has been.
We had the very, very big negative revisions to last month's data, so we'll have to see kind of how that shakes out.
Yeah, and before we move on, I do want to get your take on the fact that next Tuesday we will be getting the annual revisions to those payroll figures.
So what are your expectations, especially ahead of inflation and the Fed's September meeting?
So I mean estimates I've seen ranging anywhere from 550,000 to 950,000 negative revisions, but it's going to be you know it's going to be a big negative revision, you know, look, I think that's going to continue to kind of feed, you know, the narrative that the labor market is weakening.
It wasn't necessarily quite as resilient as we had, you know, kind of previously thought.
I think it would take a really, really strong number, you know, kind of to.
Dislodge markets from, you know, this belief that the Federal Reserve will cut rates in a couple weeks, you know.
Markets are kind of at a 90% probability.
This Federal Reserve has not shown, you know, kind of has always wanted to telegraph what they're doing.
They didn't push back against the idea of a rate cut.
I mean Chair Powell left that kind of open, you know, he did leave, you know, kind of some optionality, but you know he didn't really push back against the idea that we could see that we would see a cut in September.
So I think it would take some pretty kind of outline some outlying.
Economic data to really kind of push markets off of that.
Yeah, and now that we've covered the economic data on TA ahead of the Fed meeting in September, I do want to get your take on the sectors.
So you touched upon what we saw in terms of AI at the end of last week, but given the fact that we'll be continuing to get earnings this week, what are you watching out for when it comes to some of those keys?
Yes, so I mean it's really, it's really interesting what we've seen is kind of some of the momentum.
Um and really kind of crowded thematic trades have started to unwind during during that August time period.
Bitcoin was kind of a leading indicator of that, right after it kind of traded up to right around 125,000 and has now had a pretty significant 10% plus pull back, you know, and then we started to see some.
The other tech trades you kind of start to unwind right that AI theme has been such a big driver of markets for the last couple of years that if you start to question that, right, then you know it's hard for markets to continue to move forward.
Now something that we've been talking about is some of the rotation that we've been seeing, right, with the expectations that we're moving.
You know, into a rate cutting cycle, we've started to see kind of the small caps outperforming, you know, not this morning, this morning, you know, even you know Russell futures are down about 1.5%, right, but you know if we are to see kind of interest rates begin to move lower, given kind of more leverage on the small cap balance.
Sheets, the floating rate debt that those companies are carrying, we could start to see kind of some better performance in those more cyclical sectors.
OK, Michael, great to start out the week with you.
Next time you join me, we'll have those labor market figures.
Thank you so much for joining me.
Look forward to it.
See you next week.
See you next week.
