Eagle Bites August 7th

Job Market Report

In July, the U.S. nonfarm payrolls expanded by 187,000 jobs, slightly below the expected 200,000, indicating a slower pace in the economy. However, this number was still an improvement from the previous month’s revised figure of 185,000 jobs. The unemployment rate declined to 3.5%, beating the consensus estimate of 3.6% and remaining just above the lowest level since 1969. The Federal Reserve’s rate increases aimed at controlling inflation have not yet had their full effect, and economists worry about the possibility of overtightening leading to a recession. However, inflation data has shown some improvement, but it remains above the Fed’s target. Overall, analysts believe the labor market is solid, though signs of moderation are evident. The market is now leaning on the assumption that the Fed will hold rates steady at its upcoming meeting, with policymakers expected to raise rates one more time before the year’s end. Recession fears on Wall Street have reduced, with some analysts suggesting the U.S. may avoid a recession entirely.

US Debt Downgrade

Tuesday, Fitch Ratings downgraded the United States’ credit rating to AA+ from AAA citing primarily debt management and gridlock preventing efficient fiscal policy change. Compared to other AAA nations, the US debt-GDP ratio will be more than 2.5x higher by 2025. There have been mixed reactions from various big names on Wall Street with J.P. Morgan CEO Jamie Dimon calling it “ridiculous,” and pointing out that there are countries rated higher than the US that live under the American enterprise military system. Contrarily, Bill Ackman, CEO of Pershing Square Capital, used the downgrade in a long list of reasons to aggressively short backend US treasuries. Lastly, it’s important to note that though required to hold high-rated credit, not many goliath pension funds are required to hold just AAA debt. So ultimately,  Fitch’s change alone should not dismantle demand for US treasuries.

Saudi Arabia Oil Cuts

Last week, Saudi Arabia announced that it wouldn’t hesitate to further cut the production of oil. Over the past year, OPEC+ has cut the production of oil numerous times in an attempt to keep oil prices at elevated levels. Currently, Saudi Arabia has been on a production-cut plan, with a total cut of 1 million bpd, while Russia has plans to cut oil exports by 300k bpd starting next month. The Saudi Arabian plan was expected to span from July through the end of September, but the Saudi State News Agency announced that the cuts could be “deepened” and/or extended to later this year.

September Effect?

Despite last year being one of the worst years for the stock market after the 2008 financial crisis, stocks have turned around sharply this year. The S&P 500 is up 17%, DOW is up 7%, and stocks like Tesla & Amazon have seen increases in their numbers. In spite of all of this positivity, investors are especially worried about this year’s September effect, and how much this could affect the market. There is no real reason for the September effect but many investors have their own theories about it. We’ll have to wait and see how this September plays out for the market and the effect it has on investors.  

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