The big story is the blowout August jobs numbers posted Friday — 162,000 jobs created, with upward revisions to the previous two months. All of this paints a much better picture of the labor market than what we originally saw through the summer.
Of course, markets reacted somewhat negatively as they view this as cover for the Fed to hike interest rates. We get a fuller picture of that on Thursday and Friday when inflation figures post.
The AI trade also got some tailwinds after Nvidia’s earnings report. The worry that the AI compute build-out was slowing down was tempered by Nvidia’s now $2-trillion backlog of orders. That pushed AI companies back up, though we are still seeing a difference in performance between companies that are making money and those that are not.
Overall, stagflation is still our baseline scenario, despite the strong job creation numbers we just saw. With the Hormuz premium in oil prices for the forseeable future, higher prices may be much stickier than they otherwise might be. Energy is an input into every other industry, and it gets hard to just absorb that cost for a long time. Even so, markets are likely to continue higher so long as corporate earnings remain strong. Investors have many different risks to manage right now!
Chart of the Week
Rather than the underlying data, markets have largely been interpreting economic releases through the lens of “what’s the Fed gonna do next?” With inflation cooling somewhat this year, odds the Fed will raise rates has still increased. That is part of what makes Friday so important — a strong or weak inflation number could push the Fed in either direction.
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