After rallying initially following the Federal Reserve leaving rates as is, stock selling accelerated in last Friday’s market. Markets reacted to the bad news from the July 2024 non-farm payrolls report. Before that, none of the bad news from high inflation reports or strong job data would hurt stock markets.
The market punished ETFs last week. Nasdaq (QQQ) lost 3% in that time and is down by 8.6% in the month. The small-cap sector (IWM) lost 6.82% for the week but is up by 3.5% in the month.
Investors are worried that the 0.2% increase in unemployment is a negative trend. Unemployment at a 4.3% rate is the highest in three years. Additionally, the economy added over 100,000 jobs in the public sector, such as government and healthcare. These increases increase the burden on public spending.
Investors fled to safety by buying utility ETFs like XLU and consumer staples (XLP). Treasury yields rose sharply. The 10-year T-bill yield fell to around 3.8%, a level not seen since December 2023.
Expect the media to speculate on three rate cuts in 2024 instead of just one in September. This forecast is hopeful at best. Fed Chair Powell previously said that the Fed will cut rates only once. Inflation is too high to lower rates more than once.
