Daily Brief - Is the economy worse than we thought?

TLDR: So, here's the deal. It’s a mixed bag, depending on which economic corner you’re peeking around.

On the one hand, if you're banking on a robust labor market for job opportunities, this is an absolute bummer. But if you're a stock market aficionado, there’s a cautious grin creeping onto your face. The Bureau of Labor Statistics has dropped a bombshell, revealing that actual job growth over the past year was nearly 30% lower than initially reported.

To put it plainly: the U.S. economy churned out 818,000 fewer jobs than we were led to believe in the 12 months ending March 2024. Yes, that’s a substantial downward revision— the largest since the dark days of the 2009 financial crisis. While whispers of a revision circled for months, no one expected it to be quite this massive.

Let’s break it down like a data-loving aficionado: the new figures suggest average monthly job gains of 174,000, compared to the erroneously rosy 242,000 per month we’d been working with. The hardest-hit sector? Professional and business services, with a gut-wrenching 358,000 fewer jobs. Leisure and hospitality were down by 150,000, manufacturing saw a 115,000 decline, and trade, transportation and utilities dropped by another 104,000.

Alright, so why is this suddenly silver-lining territory for some folks?

A weakening labor market gives the Federal Reserve a chance to flex its dual mandate muscles, allowing it to paint a more nuanced picture—“Look! We’re concerned about employment AND inflation!” This means investors are now bracing themselves (hoping) for the Fed to start laying the groundwork for a rate cut at the September meeting.

And guess what? Jerome Powell is about to take the stage later today at Jackson Hole, that venerable gathering where Fed bigwigs have historically dropped hints about impending policy shifts. Not a total surprise here, but you know how it is—everyone loves a little drama and intrigue.

Stay tuned; we’ll know more soon.

Market Movers: In case of emergency

Here is the historical 1-month performance of S&P sectors following prior 15 basis points jump in the US 10Y:

1. S&P Energy: 3.23%
2. S&P Utilities: 1.83%
3. S&P Real Estate: 1.47%
4. S&P Technology: 1.33%
5. S&P Industrials: 0.51%
6. S&P Consumer Discretionary: 0.46%
7. S&P Consumer Staples: 0.45%
8. S&P Health Care: 0.43%
9. S&P Materials: 0.36%
10. S&P Financials: 0.14%
11. S&P Telecom: -0.11%

Earnings Spotlight: NVIDIA to the rescue?

NVIDIA is set to release its highly anticipated earnings post-market on Wednesday, with investors closely watching the chipmaker that has become a pivotal player in the artificial intelligence boom.

The company is projected to achieve a record $28.72 billion in revenue for the second quarter, according to FactSet estimates, alongside a net income of $14.98 billion and earnings per share of $0.65.

With NVIDIA’s performance potentially eclipsing even Federal Reserve Chair Jerome Powell's upcoming remarks, the chip giant must deliver another stellar quarter and optimistic guidance to support the lofty valuations of tech stocks that have recently appeared overvalued.