The weak jobs report points to guaranteed rate cuts ahead

After the arrival of a less-than-stellar jobs report, the stock market is now ending a bad week on a sour note.

August jobs data broadly missed expectations and showed a big slowdown in hiring last month. That disappointing print only fueled investor fears of a potential recession on the horizon.

But the same jobs report also confirmed that the Federal Reserve is on track to bail out the economy (and the stock market) with interest rate cuts — likely starting in less than two weeks.

And we think these rate cuts should feed back into the market and trigger a very strong rally in stocks at the end of the year.

Let’s dig into the data to understand why.

Deciphering the August jobs report

Last month, nonfarm payrolls rose by 142,000 — well below the 165,000 expected by economists. Worse, both the June and July payrolls numbers were revised significantly lower by a total of 86,000 jobs.

Between August’s weak numbers and large downward revisions to June and July’s data, the six-month moving average of wage growth fell to 164,000.

This is a very low level.

Typically, when the economy is not in a recession, job growth amounts to nearly 250,000 new jobs per month.

We are currently running at about 100,000 jobs below that pace. And I’ve been running at that pace for the past six months.

History suggests that if these trends continue, job growth will eventually turn into job losses – and the US economy will go into recession.

The good news, however, is that the Fed may begin to reverse these trends within two weeks.