Markets Reach Critical Support!

Will the Lows Hold?

KR Opinion

As we approach a crucial week for economic data and market activity, there's growing skepticism about the validity and transparency of official economic figures. This uncertainty creates a complex environment for investors and market participants to navigate.

Recent data releases have raised eyebrows among analysts and economists. For instance, participation rates and unemployment figures have decreased despite evidence of 800,000 fewer jobs in the economy. These discrepancies lead many to question the accuracy and reliability of various economic indicators, including GDP, labor market statistics, and inflation measurements.

The potential need for significant adjustments to these figures is becoming increasingly apparent. Interestingly, some of these adjustments could paint a more positive economic picture, particularly in the case of inflation, which might be overstated in current reports.

A key question on many minds is whether Federal Reserve Chairman Jerome Powell will address these data inconsistencies during his press conference following the upcoming FOMC meeting on September 18th. The Fed's acknowledgment (or lack thereof) of these issues could have significant implications for market sentiment and future policy decisions.

This situation highlights a growing concern about the integrity and transparency of government-reported economic data. It's creating an environment where market participants are unsure about the reliability of the information they use to make investment decisions.

Despite these uncertainties, we must continue to monitor these economic releases and observe how the market responds to them. Curiously, many market participants view these figures through rose-colored glasses, accepting them at face value and trading accordingly. This creates a challenging situation where we must consider the potentially flawed data and the market's reaction to it when making investment decisions.

The coming week will be particularly significant, with the release of Consumer Price Index (CPI) and Producer Price Index (PPI) data on Wednesday and Thursday, respectively. These inflation indicators are expected to show a modest 0.1% increase across the board, but given the current skepticism, these figures will be scrutinized closely.

Regarding market technicals, it's worth noting that we've seen some interesting movements in the S&P 500. There was a print as low as 5396 in after-hours trading on Friday, approaching the significant 5392 level mentioned previously. However, overnight trading has seen the index recover to around 5450. We may see some of these gains erode as we approach the U.S. market open, and bears are watching a minor Inverted V-top formation visible on the hourly chart.

As we head into the week before the FOMC meeting, the markets can expect heightened volatility and nervousness. There's a palpable sense of uncertainty surrounding the upcoming economic data releases and their potential impact on Fed policy decisions.

It would be best to brace yourself for a potentially turbulent week, staying alert to both the official data releases and the market's interpretation of them. It will be crucial to remain flexible in your investment approach, considering both the reported figures and the growing skepticism about their accuracy.

Looking back on last week

As September's first week drew close, the stock market was on shaky ground. The major indices recorded substantial losses, finishing near their session lows, setting a somber tone for the month's start.

Investors were primarily reacting to the August Employment Situation report released Friday morning. While the report was weak enough to fuel further selling in an already downbeat week for equities, it wasn't sufficiently poor to convince market participants that the Federal Reserve would implement a 50-basis point rate cut at the upcoming September 17-18 FOMC meeting.

Notable weakness in the semiconductor sector, a key driver of market performance in recent months, added to the negative sentiment.

The August jobs report painted a mixed picture of the labor market. Nonfarm payrolls increased by 142,000, falling short of the 165,000 predicted by MY Forecast. The previous month's figure was revised downward to 89,000 from 114,000. Private sector job growth also disappointed, with 118,000 new jobs added compared to the 142,000 forecast.

On a more positive note, average hourly earnings rose by 0.4%, exceeding the expected 0.3% increase. The unemployment rate peaked at 4.2% from 4.3%, meeting expectations. The average workweek lengthened slightly to 34.3 hours from 34.2 hours.

According to My Forecast, the key takeaway from this report is its nuanced nature. While not as robust as hoped, it didn't paint as dire a picture as some feared. The data aligns with the growing understanding that hiring activity is slowing, likely translating into a broader economic deceleration.

While concerning for some, this labor market cooldown is a necessary step in the Federal Reserve's efforts to bring inflation under control without tipping the economy into a recession. However, it has left investors needing clarification about the future pace of economic growth and the Fed's next moves.

The semiconductor industry's struggles have added another layer of complexity to the market outlook. As a sector often seen as a bellwether for broader technology trends and global economic health, its weakness has raised concerns about the sustainability of the tech-driven rally that has propelled markets for much of the year.

As we move further into September, traditionally a challenging month for stocks, market participants will be closely watching for additional economic data and any signals from Federal Reserve officials about the future path of monetary policy. The interplay between labor market dynamics, inflation concerns, and growth prospects will likely continue to drive market sentiment in the coming weeks.

As we enter the week of September 9th, market participants will be closely watching a series of important economic releases that could significantly impact trading sentiment.

On Monday, September 9th, July's Wholesale Inventories data will be released. According to MY Forecast, the data is expected to show a 0.3% increase. Later that day, July's Consumer Credit figures will be published, with consensus estimates pointing to an $11.5 billion increase.

Tuesday, September 10th, brings August's NFIB Small Business Optimism Index, offering insights into the mood among small business owners.

Wednesday, September 11th, is a crucial day for markets. The August Consumer Price Index (CPI) will be released, with MY Forecast predicting a modest 0.1% increase. Core CPI, which excludes volatile food and energy prices, is expected to rise by 0.2%. These inflation readings will be pivotal for Federal Reserve policy considerations. Additionally, energy traders will closely watch the weekly EIA Crude Oil Inventories report.

Thursday, September 12th, brings a flurry of high-impact releases. Initial and Continuing Jobless Claims will provide the latest labor market snapshot. The Producer Price Index (PPI) for August is anticipated to show a 0.1% increase, with Core PPI expected to rise 0.2%. These figures will offer further insights into inflationary pressures at the producer level.

The week concludes on Friday, September 13th, with August import and Export Prices data. The preliminary reading of the September University of Michigan Consumer Sentiment Index will cap off the week, providing valuable information about consumer confidence and expectations.

WaveTech Database