Stocks Head into Holiday Weekend Mixed…..

U.S. equities headed into the long holiday weekend mixed, both for today’s session and on a weekly basis, but the Nasdaq notched yet another record high. Investors digested a much softer-than-expected August nonfarm payroll report that showed the Delta variant and seasonal factors may have played a role. The report likely keeps Fed tapering expectations intact, but it possibly pushed out the commencement to later this year, despite a noticeable rise in wages. Treasuries were lower, pushing yields higher, and the U.S. dollar dipped, while gold rallied, and crude oil prices edged lower. In other economic news, August U.S. services sector activity slowed but remained solidly in expansion territory, similar to reads out of Europe, though contractions were seen in Asia, notably an unexpected drop in China. On the equity front, Broadcom topped earnings expectations, along with DocuSign. Europe closed out the week lower, and markets in Asia were mixed.

The Dow Jones Industrial Average declined 75 points (0.2%) to 35,369, the S&P 500 Index shed 2 points to 4,535, while the Nasdaq Composite advanced 32 points (0.2%) to 15,364. In moderate volume, 703 million shares were traded on the NYSE and 3.6 billion shares changed hands on the Nasdaq. WTI crude oil shed $0.70 to $69.29 per barrel. Elsewhere, the gold spot price jumped $20.30 to $1,831.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.2% lower to 92.08. Markets were mixed for the week, as the DJIA lost 0.2%, while the S&P 500 rose 0.6%, and the Nasdaq Composite increased 1.6%.

August employment report misses noticeably, services sector activity slows but remains solid…..

Nonfarm payrolls rose by 235,000 jobs month-over-month (m/m) in August, well below the Bloomberg consensus estimate of a 733,000 rise, though July’s figure was upwardly-adjusted to an increase of 1,053,000. Excluding government hiring and firing, private sector payrolls increased by 243,000, versus the forecasted rise of 610,000, after increasing by an upwardly-revised 798,000 in July. The labor force participation rate remained at July’s 61.7% rate, compared to forecasts of an increase to 61.8%. The Department of Labor said job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services, while employment in retail trade declined over the month and leisure and hospitality job growth was unchanged after increasing by an average of 350,000 per month over the prior six months.

The unemployment rate decreased to 5.2% from July’s 5.4% rate, in line with expectations. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—fell to 8.8% from the prior month’s 9.2% rate. Long-term unemployed—those jobless for 27 weeks or more—fell by 246,000 but is 2.1 million higher than in February 2020, and permanent job losers dropped by 443,000 but is 1.2 million higher than in February 2020.

Average hourly earnings jumped 0.6% m/m, north of projections for a 0.3% increase, and versus July’s unadjusted 0.4% rise. Y/Y, wages were 4.3% higher, north of the 3.9% forecast. Finally, average weekly hours remained at July’s downwardly-revised 34.7, versus expectations of a modest increase to 34.8.

The August Institute for Supply Management (ISM) non-Manufacturing Index showed expansion in the key services sector (a reading above 50) slowed to 61.7 from July’s 64.1 reading, and versus estimates of a decline to 61.6. The modestly better-than-expected read came as growth in new orders and business activity declined but both remained above 60.0, employment growth was little changed. However, new export orders fell but remained solidly in expansion and prices paid continued to suggest inflation pressures as the component retreated from the highest level since September 2005, but remained above 75.0. The ISM said, “There was a pullback in the rate of expansion in the month of August; however, growth remains strong for the services sector. The tight labor market, materials shortages, inflation and logistics issues continue to cause capacity constraints.”

The final Markit U.S. Services PMI Index for August was revised slightly lower to 55.1 from the preliminary estimate of 55.2, where it was expected to remain. The index was down from July’s 59.9 figure. A reading above 50 denotes expansion. Markit’s release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in size, including small and medium-sized companies.

Treasuries were lower following the data, as the yield on the 2-year note was little changed at 0.20%, while the yield on the 10-year note rose 4 basis points (bps) to 1.32%, and the 30-year bond rate gained 5 bps to 1.94%. The U.S. dollar saw modest pressure.

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