Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) ended Wednesday’s trading session in the green, boosted by a powerful rally during the last hour.
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This morning’s Job Openings and Labor Turnover Survey (JOLTS) showed further evidence of a cooling labor market. July’s layoffs rose to 1.808 million, above the estimate of 1.639 million, while June’s layoffs were revised higher to 1.796 million from 1.604 million. Additionally, July’s job openings of 7.181 million fell short of the estimate of 7.380 million. The JOLTS data also showed that the U.S. now has more unemployed people than job openings. The ratio of job openings to unemployed workers dropped below 1 to 0.99 for the first time since April 2021.
The disappointing jobs data elevated the odds of a 25-bps rate cut at the September 16-17 Federal Open Market Committee (FOMC) meeting to 95.4% on CME’s FedWatch tool. The odds were at 88.7% a week ago and 80.3% a month ago. A labor market at risk fuels expectations for rate cuts because lower borrowing costs can stimulate hiring and economic growth.
Fed Governor Christopher Waller has reiterated his call for rate cuts to begin later this month in light of labor market concerns. He added that the labor market tends to drop in a “nonlinear fashion” in times of economic trouble, stressing the importance of cutting rates now rather than later. St. Louis Federal Reserve President Alberto Musalem echoed his concerns, explaining that a slowdown in hiring in conjunction with a rise in layoffs could disrupt the economy.
“While I am not hearing from businesses about an imminent increase in layoffs, real GDP growth that is somewhat below potential and profit margin pressures related to tariffs could contribute to such an outcome,” Musalem said in a speech at the Peterson Institute.
It wasn’t all bad news, as HSBC hiked its 2025 S&P 500 (SPX) price target to 6,500 from 6,400 after raising it to 6,400 from 5,600 last month. The bank also raised its 2025 SPX EPS growth estimate to 12% from 9%, citing strong second-quarter earnings that fared well in light of rising tariffs.
“Companies with tariff concerns were mainly concentrated in the consumer staples sector,” said HSBC. “For 2H, we expect flattish S&P 500 margins as strength in tech and financials offsets pressure on consumer staples/discretionary.” The bank added that risks to the upside include an inflation comeback and a cooling labor market, while improving geopolitical relationships and productivity gains from AI are positive catalysts.
Finally, President Trump warned that he may be forced to unravel trade deals if his appeal to the Supreme Court fails, which could result in tariff refunds. “These deals are all done. I guess we’d have to unwind them,” Trump said. On Friday, an appeals court ruled that Trump overstepped his legal authority by issuing sweeping tariffs, leaving the tariffs in place until October 14 to allow the administration to appeal the decision. Trump has said that he will request an expedited ruling with the Supreme Court.
The S&P 500 (SPX) closed with a 0.51% gain while the Nasdaq 100 (NDX) returned 0.79%.
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