How big will the Fed rate cut be? Follow the jobs report

For investors, August was like a pretty wild rollercoaster ride. Start your journey in a small car, going up and up and up. At the top, everything suddenly becomes very quiet.

When gravity starts to do its thing, everyone screams and screams until finally the coaster slides smoothly into the station.

It’s a pretty good metaphor for what happened to the financial markets during the month.

The market started the month with recession fears fueled by a weaker-than-expected jobs report, followed immediately by near-panic. Part of the panic was those recession fears. The bigger problem was the volatility in Japanese markets that briefly spread around the world.

Related: Stocks rally faces tough seasonal test in September

Some stocks just exploded, like Super Micro Computer (SMCI) which fell 19.9% ​​in one day. Or Intel (INTC) which just fell and fell and fell.

For many investors, the experience was not fun. The Dow Jones industrial average fell 2,100 points in three days, the biggest being a 1,033-point plunge on Aug. 5, leaving the Dow at 38,703.27.

And then the market turned.

From there, the Dow rose 7.4% and ended the month up 1.8%. The Standard & Poor’s 500 index, off 6.1% in those dire early days, rebounded to gain 2.3% for the month. The Nasdaq Composite fell 5.8% between August 1 and 5. His monthly earnings: a modest 0.7%.

With all that buzz, August ended up being a small month in terms of numbers when all was said and done.

US Federal Reserve Chairman Jerome Powell, right, and Bank of England (BOE) Governor Andrew Bailey during the Federal Reserve’s Jackson Hole Economic Policy Symposium in Kansas City.

Bloomberg/Getty Images

Powell offers good news

But there was one moment, actually, to think about what was going on: when Federal Reserve Chairman Jerome Powell finally told a gathering of central bankers in Jackson Hole, Wyo. — and to the world: “The time has come for politics to adjust. ” It means that interest rates are going down.

September begins there. The Fed meets on September 17-18 and will almost certainly cut its key federal funds rate from 5.25% to 5.5%, the level set in July 2023.

The conventional wisdom is that the first discount will be from 5% to 5.25%. Not a big discount, but the first cut since July 2023.

Credit markets have already pushed the government’s 2-year Treasury note yield down 22 percent, from 5.1 percent in April to 3.92 percent on Aug. 30.

The yield on the 10-year Treasury, a key driver of mortgage rates, fell 21 percent from just under 5 percent last October to 3.91 percent as of Aug. 30.

Mortgage rates are now below 6.5%, although national housing reports suggest they haven’t fallen enough to make buyers brave enough to make offers.

More cuts are likely in the coming year, and the behavior of Treasury yields are signals that markets are already expecting.

More analysis on Wall Street:

• Veteran fund manager reveals stunning predictions for Nvidia stock
• Intel’s future may suddenly be in doubt
• Not all analysts are badass on the battered Super Micro Computer

How the jobs report will affect the Fed

The jobs report, due before the market opens on Friday, is expected to show an employment rate of 4.2 percent, down slightly from July’s 4.3 percent. Nonfarm payrolls are expected to increase by 134,000. A higher-than-expected unemployment rate will put more pressure on the Fed to cut rates. Likewise if the number of payroll hires is less than expected.

If the numbers are stronger than expected, the Fed will stick with a small rate cut in September.

These are, of course, noisy numbers, subject to substantial revisions due to the difficulties of collecting data and making sense of it. But markets react to them anyway.

Earnings seasons are coming to an end, but a report is a big deal

The report that will stand out this week comes from Broadcom (AVGO) on September 5. It is a major semiconductor manufacturer and software developer. Broadcom is rapidly building a presence in artificial intelligence. Analysts expect earnings of $1.20 on revenue of about $13 billion.

Shares are up nearly 46% this year.

Other companies reporting this week include:

• Cyber ​​security company Zscaler (ZS) . The company provides cloud-based services to protect enterprise networks and data.
• Hewlett-Packard Enterprise (HPE) the data center business.
• Dicks Sporting Goods Retailer (DKS) .

Related: A veteran analyst explains why General Motors stock is a bargain buy

Technology did not dominate the markets in August

Overall, technology is still the biggest sector for stocks. The S&P 500 has rallied this year, thanks in large part to the 26.5% gain enjoyed by the information technology sector. Think Nvidia (NVDA) Microsoft (MSFT) Apple (AAPL) and others.

But in August, the sector grew by just 1.16%. It fell 2.1% in July.

Big gainers include Consumer Staples, up 5.8%, Real Estate, up 5.6%, Health Care, up 4.4% and Utilities, up 4.3%. Evidence, perhaps, of an expanding economy.

Best S&P 500 Companies for the Month:

• Kellanova (K) snack maker, as well as international versions of Kellogg’s Rice Krispies and other cereals, up 38.6%.
• Cybersecurity company Fortinet (FTNT) up 32.2%.
• Axon Enterprise, (AAXN) best known for making Tasers, up 21.7%.
• Starbucks (SBUX) up 21.3% after hiring Brian Niccol as its new CEO.
• Clorox (CLX) up 20%. The home products company’s profits offset weak sales.

S&P 500 worst performers: Super Micro Computer (SMCI) down 37.6%; Vaccinmaker Moderna (mRNA) down 35.1%; discount retailer Dollar Tree (DLTR) down 31.1%; Intel, down 28.3%, and Walgreens Boots Alliance (WBA) down 22.1%.

Dow tops: Walmart (WMT) up 12.5%, Nike (NKE) up 11.3%; and McDonalds (MCD) up 8.8%.

Losers: Chevron (CVX) down 7.8%, Boeing (nay) down 8.9% and Intel.

The three most valuable companies saw their shares struggle. Apple rose just 3.1%. Microsoft fell 0.3%. Nvidia (NVDA) increased by 2%.

Meta platforms (THE TARGET) increased by 9.8%. Alphabet parent Google (GOOGLE) decreased by 4.8%. adze (TSLA) decreased by 7.7%.

Related: Veteran fund manager sees world of pain coming for stocks