🏛️ Market Brief – Employment Sends Rate Cut Odds Surging

The August employment report painted a clear picture of a cooling U.S. economy. Employers added just 22,000 jobs, far below consensus expectations, signaling that hiring momentum has slowed. Even more troubling, June was revised to show a loss of 13,000 jobs, the first monthly contraction since 2020. Meanwhile, unemployment rose to 4.3%, its highest level in nearly four years. Job gains were concentrated in healthcare, while manufacturing and federal employment weakened further. Layoffs also surged, with about 86,000 job cuts announced in August, the largest total for that month since the pandemic years.

This weakness has several implications. First, it points to slowing economic growth as companies curb expansion and trim payrolls. Second, and more notably, a softer labor market reduces upward pressure on wages. That, in turn, eases one of the stickiest drivers of inflation. As wage growth cools alongside weaker hiring, consumer demand could moderate further, lowering inflationary pressures in the months ahead. That will give the Federal Reserve additional cover to shift from its more restrictive stance and join into the rate cutting race that is already happening globally.

Next week, on Tuesday, we will also get the annual revisions to the BLS employment report. That adjustment will likely show that over the last 12-months somewhere between 550,000 to 800,000 fewer jobs were created than originally reported based on the QCEW report.

The bond market responded as expected. Bond yields fell as investors realized the disinflationary impact of slower employment and wage growth would increase recession risk. If the revisions to employment show a substantially weaker than expected outcome, bond yields will likely fall further.

But looking forward, the market faces a tug-of-war. Historically, lower interest rates support higher equity valuations by reducing discount rates and improving liquidity. However, slower economic growth directly pressures corporate earnings, particularly in cyclical sectors tied to consumer spending, manufacturing, and capital investment. If earnings revisions trend lower, the risk of the market questioning high forward valuations will increase.

Just a risk worth considering.

Outlook: Markets may remain volatile in the near term as monetary easing collides with weakening fundamentals. The balance of risks suggests that earnings deterioration could eventually outweigh the initial rate-cut optimism.

📈Technical Backdrop

The S&P 500 closed at 6,481.50 after hitting a record high earlier in the week. Momentum indicators remain supportive of further gains. The 14-day RSI sits near 58 and remains in a negative divergence with the market. At the same time, as the market trends bullishly, the risk of a corrective/consolidative period increases as relative strength erodes. The MACD further confirms that outlook, which suggests momentum is slowing. While there is a cluster of buying support at current levels, a break below the 50-DMA (~6350) will likely find a lack of buyers until the 200-DMA at ~6000.

However, the bullish bias remains for now. The index continues to trade above its 20-, 50-, and 200-day averages, and crossover signals from short- and medium-term moving averages confirm trend strength. Breadth also appears healthy, with multiple sectors participating in the advance, including technology, financials, and housing, which is an encouraging sign.

At the same time, traders should remain mindful of possible short-term headwinds, particularly as we move past mid-month, when corporate share buybacks will return to “blackout.” As noted above, with economic data already weak and seemingly getting weaker, a more substantial market risk remains earnings outlooks. If earnings estimates start to be revised lower, the valuation multiple currently paid by investors may be questioned. Still, the broader technical backdrop remains positive, and strong sector participation suggests that any dip is likely to be shallow rather than the start of a deeper correction.

Key support levels now sit at the 6,444 area (20-day moving average) and 6,350 (50-day moving average), which should provide near-term buying interest if tested. A break below the 6,350 level would open the door to a deeper retracement toward 6,000 (200-day moving average), though that level remains distant given current strength. On the upside, the immediate resistance lies at 6,525–6,550, the zone of recent intraday highs. A breakout above that range could target 6,600 as the next psychological milestone.

Outlook: The S&P 500 looks poised to extend its rally into next week, but traders should expect potential consolidation between 6,420 and 6,525 before a push toward 6,600.

🔑 Key Catalysts Next Week

Markets enter the week awaiting inflation and labor signals as the Fed’s blackout period approaches. With markets firmly pricing in a 25-basis-point rate cut at the September 16–17 FOMC, any surprises in core inflation or labor momentum, especially via PPI, CPI, or jobless claims, could swing sentiment sharply. Traders will closely watch these numbers to gauge whether the Fed will proceed cautiously or accelerate easing.

The week ahead centers on inflation dynamics, with PPI on Wednesday and CPI on Thursday, against a backdrop of consumer credit trends and confidence. Elevated PPI and CPI readings could delay or derail rate-cut expectations, while softer figures may embolden markets toward easing. Wholesale inventories and Treasury issuance data will add texture to supply-demand and financial conditions. All eyes now turn to these prints for the Fed’s September policy path.

Outlook: Inflation remains the x-factor this week. Soft data should cement market bets on a September rate cut, while upside surprises in PPI or CPI could give markets pause and force a re-evaluation of Fed timing.

📒 Portfolio Tactics – Trading September Weakness?

September often delivers disappointing returns for equity investors. Historically, it’s the weakest month for the S&P 500, averaging a decline of nearly 1% from 1950. This seasonal weakness stems from multiple factors, but the risks look more acute this year. The corporate buyback window is closing, reducing a significant source of consistent demand. At the same time, institutional managers will begin quarter-end rebalancing. That process often involves selling equities to lock in gains and reallocate into underperforming asset classes like bonds or cash. With markets not far off from all-time highs and breadth narrowing under the surface, the setup for a drawdown is present. September won’t guarantee a correction, but conditions warrant tightening risk.

Here are seven actions investors should consider now:

1. Rebalance equity exposure. Trim overweight positions in tech and large-cap growth stocks that have led the rally. Reallocate toward more defensive sectors or cash equivalents.
2. Raise cash. Take profits from extended positions and increase cash levels to reduce portfolio volatility and create flexibility for future opportunities.
3. Review stop-loss levels. Tighten stops on high-beta or speculative names. Don’t let short-term volatility erase year-to-date gains.
4. Monitor MACD and RSI indicators. Use technical tools to identify momentum deterioration and confirm trend changes before shifting allocations.
5. Evaluate fixed-income opportunities. Consider reallocating capital into short-duration Treasuries or high-quality bonds to take advantage of attractive yields amid uncertainty.
6. Hedge equity exposure. Use inverse ETFs or put options selectively to hedge downside risk in portfolios exposed to broad-market weakness.
7. Prepare a buy list. Identify fundamentally strong names you want to own if prices correct 5–10%. Capital should be positioned to act when value re-emerges.

September doesn’t require panic, but it demands preparation. With seasonal headwinds building, reduced buyback support, and potential asset shifts by institutional managers, it’s a smart time to review exposures and tighten your game plan. Risk happens fast when momentum breaks. Use this window to get ahead of it.

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