Earnings and continued AI related deal activity kept this bull market intact this week. Rising rates stole the spotlight, and Friday’s jobs report just threw the “Goldilocks” into disarray. We have jobs and earnings growth. The 10 year Treasury hit 4.8%, and the 30 year 5.2%, pressuring valuations, especially in growth names. Thursday brought relief when Fed Governor Waller sparked a reversal in both bonds and stocks. That relief didn’t last: Friday’s August jobs report smashed expectations, reviving odds of a hike and sending yields, the dollar, and gold all moving the other way after the release. Oil is still near $96 amid U.S. Iran tensions, and markets are now balancing solid earnings against a genuinely tougher and more uncertain macro backdrop, with asset valuations having little room for error.
Four factors driving markets this week
1. A divided Fed and Friday’s data just complicated it further.
Chair Kevin Warsh’s hawkish Jackson Hole tone had markets bracing for a September hike, but Waller pushed back Thursday, favoring a hold unless inflation surprises to the upside. That pulled the 10 year back to ~4.77% and sparked a broad rally. Friday morning undid a chunk of that: nonfarm payrolls rose a seasonally adjusted 162,000 for the month while the unemployment rate held steady at 4.1%, nearly triple the 53,000 economists expected, and the strongest monthly gain since March. Stock index futures moved mostly lower after the release while Treasury yields rose sharply, particularly at the short end where Fed policy has the most direct impact. A hike is back in play; the CPI/PPI data next week will be a factor in deciding it.
2. The employment picture just flipped.
July payrolls fell 23,000, and August ADP data added just 38,000 jobs, that soft trend is exactly what Waller was leaning on Thursday. This morning’s headline number broke that pattern decisively, showing hiring accelerated rather than continuing to cool. It’s the kind of surprise that reduces the labor market’s usefulness as an argument for a hold, shifting more of the decision making burden onto next week’s inflation data.
3. Oil as a Fed problem.
Brent crude moved above $90 (and has since pushed toward $96) amid escalating tensions in the Middle East, squeezing consumers and margins while raising inflation expectations. Combined with today’s stronger labor data, oil’s persistence gives hawks on the Committee two supporting arguments, even as talk of a “cooling” labor market has just lost credibility.
4. Earnings support, but valuations are high.
Strong results and Nvidia’s agreement to acquire Hugging Face reinforced the AI investment story. Still, weak reactions elsewhere show valuations leave little room for disappointment , a dynamic that gets less forgiving if yields grind back toward this week’s highs.
What we’re watching next week
- CPI/PPI (Thu/Fri): This will be important for the interest rate direction. A soft print paired with today’s hot jobs number would suggest a strong but not overheating economy and could still support a hold; a hot print on top of today’s payroll beat makes a September hike a much easier call for the FOMC.
- Treasury yields globally: Japan’s 10 year yield above 3% adds pressure on U.S. yields; next week’s Treasury auctions test demand at a time when the long end is already fragile. 4.8% remains the key level for equities, and today’s data puts the 10 year back within striking distance of it.
- Oil and the Fed’s reaction function: Continued climbs, now paired with a hot jobs report, raise the odds that inflation risk, not labor market weakness, becomes the Fed’s dominant concern heading into September 16.
The Path Forward: Constructive but cautious:
Earnings are still doing the heavy lifting for this market, but nearly everything else, yields testing 4.8% again, oil above $90, and a labor market that just surprised to the upside instead of confirming a cooldown, is raising the degree of difficulty. Thursday’s dovish shift in Fed tone bought some breathing room for stocks and bonds; Friday’s jobs number spent a good chunk of it. The path forward in the short run has less to do with earnings and more to do with whether next week’s inflation data can still give valuations room to breathe, now that the labor market has stopped doing the Fed’s work for it. In the short run, markets trade on expectations. Over the long run, stock prices follow earnings.
Investment Advisory Services offered through Expressive Wealth, LLC. All investing involves risk, including the potential loss of principal. Market volatility may significantly impact the value of your investments. This communication is provided for informational purposes only and should not be construed as personalized investment advice or a recommendation of any particular security, strategy, or investment product. Information has been obtained from sources believed to be reliable, though not independently verified. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Expressive Wealth research and professional experience and are expressed as of the date of this report. We recommend consulting with a qualified financial advisor to develop a strategy that aligns with your financial goals and risk tolerance.
6601 N Avondale Ave Chicago IL 60631 | Tel: (847) 595-8812 | web: expressivewealth.com | Fax: (847) 906-3722 | Email: moc.htlaewevisserpxe@maet