Week of Sep. 1: Jobs Reprice the Fed

This week's U.S. equity market was nearly flat, but the policy signal shifted: Thursday's relief rally followed Christopher Waller's conditional support for holding rates, while Friday's August jobs report kept the Federal Reserve focused on inflation and limited the case for quick easing.

The Dow fell 0.3% for the week, while the S&P 500 rose 0.1% and the Nasdaq Composite gained 0.4%. Friday closed lower after the employment report, with the Dow down 0.51%, the S&P 500 down 0.38%, and the Nasdaq down 0.29%. 1

The week was selective rather than broadly risk-on. Reuters reported consumer discretionary as Friday's weakest sector, while semiconductors gained 3.4% and software and services fell 2.1%. Lululemon dropped 17.4% after cutting its full-year forecasts, and Adobe fell 6.7% after announcing a CEO succession. 2

The August Employment Situation showed payrolls increasing by 162,000, unemployment holding at 4.1%, and average hourly earnings rising 3.1% from a year earlier. June and July payrolls were revised up by a combined 55,000. 3

On September 3, Federal Reserve Governor Christopher Waller said inflation remained meaningfully above the Fed's 2% goal. He said continued disinflation could support holding rates, while a hot inflation reading and a reversal in progress could make a rate hike worth considering. 4

U.S. markets are closed Monday, September 7, for Labor Day. August PPI and existing-home sales are scheduled for Thursday, September 10; August CPI and core CPI are scheduled for Friday, September 11. The earnings calendar also includes Oracle, Macy's, Adobe, Kroger, Casey's, and Chewy. 56

The episode's through-line is simple: a strong-enough labor report preserved the Fed's inflation constraint just as a more dovish reading of Waller's remarks had lifted stocks. Next week's PPI and CPI will test which signal carries more weight.