The concern for the stock market is that the Federal Reserve will increase its tightening of monetary policy, as a weakening in the labor market is needed to try to rein in red hot inflation. The market is now pricing in a 66.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday, according to CME Group.
The Fed has already raised rates four times this year, including two 75 basis-point rate increases in June and July—the biggest since 1994—and is expected to keep raising rates this year before cooling off in 2023. The risk is that denting economic demand, while it should bring inflation under control, could cause a recession.
But Friday’s job numbers could contradict the debate that the U.S. is in a recession, which has been ongoing since the U.S. economy shrank for the second straight quarter. Cliff Hodge, chief investment officer at Cornerstone Wealth, argued against recession possibilities for now, and said Friday that “we don’t add 528k jobs in a month when we’re in a recession. That’s the good news.”
Jan Szilagyi, CEO and co-founder of AI research firm Toggle, wrote Friday that “for the Fed, this means maintaining a very hawkish stance, and can’t let go of the 75 basis-point pace—in fact, discussion about 100 basis-point will probably be reopened.”
But despite the better-than-expected jobs numbers, higher treasury yields and the possibility of an aggressive Fed becoming more of a reality, stocks didn’t totally sink Friday. In fact, today’s close for the Dow marks the third consecutive weekly gain for the index and its longest weekly winning streak since the five-week winning streak ending Nov. 5, 2021. That could be because traders are “holding out hope that the consumer price index report is going to be good,” Tom Essaye, founder of Sevens Report Research, said on Friday.
The CPI results will be released on August 10, and traders will be looking closely to those data points, which will show how much inflation has either slowed down or picked up in July. Economists surveyed by FactSet expect that consumer prices increased 8.7% over the last 12 months, which is down from the 40-year record of 9.1% reported for June. If inflation ticked up more than expected, that could mean even more bad news for stocks.
Timothy Chubb, chief investment officer at Girard, said on Friday that there has been an overall theme with economic data coming in higher than expectations recently, such as the jobs report and prior inflation data, and he doesn’t expect next week’s CPI report to be any different.
“If we see a really hot number, the market will certainly be risk off. Maybe we see a little bit more tightening and rate increases get priced into the market, so I think there’s some risk on the short end,” Chubb said.
Here are some stocks that moved Friday:
Cloudflare (ticker: NET) jumped 27% after the web security provider raised its full-year revenue guidance. The company detailed expected full-year revenue of $968 million to $972 million, above its previous projections of $955 million to $959 million and outpacing analysts’ consensus estimates of $958.4 million.
Virgin Galactic Holdings (SPCE) dropped 17% after the space tourism group pushed back the launch date of its commercial service to the second quarter of 2023, after already pushing the date back to the final quarter of 2022.
DraftKings stock climbed 10% after the online sports betting platform lifted its financial forecast and reported a narrower loss and higher revenue than Wall Street expected for its second quarter.