Stocks Up on ‘Middle-of-the-Road’ Jobless Claims: Markets Wrap

(Bloomberg) — Stocks rose after the latest jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated Federal Reserve rates.

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In the run-up to Jerome Powell’s speech in Jackson Hole on Friday, equities rose in early New York trading — with the S&P 500 less than 1% away from its all-time high. Treasury yields and the US dollar were mildly up.

Applications for US unemployment benefits barely rose, indicating the labor market is moderating only gradually. Initial claims increased by 4,000 to 232,000 in the week ended Aug. 17. The four-week moving average, which smooths out some of the volatility, fell to the lowest in a month.

“Investors may look past today’s ‘middle-of-the-road’ jobless claims and focus on next week’s inflation data and Nvidia earnings,” said Chris Larkin at E*Trade from Morgan Stanley. “Recession jitters may have receded, but the markets are still probably more concerned about the economy cooling too much rather than reheating.”

Larkin says the latest jobless claims numbers suggest the labor market is slowing but resilient, and that should help keep the Fed on course for September.

At Evercore, Stan Shipley says Thursday’s claims figures were a “yawn” for Treasury yields — though they suggest the job market is “not cratering.”

The recent economic data will help shape Powell’s latest assessment of the labor market ahead of a speech Friday. Policymakers have recently turned their attention to the labor side of their dual mandate now that inflation has come down from its pandemic peak. Fed Bank of Kansas City President Jeffrey Schmid said he wants to see more data before supporting rate cuts.

S&P 500 contracts rose 0.3%. Peloton Interactive Inc. rallied as a profit beat signaled the struggling fitness company’s turnaround efforts are starting to bear fruit. Snowflake Inc. plunged as a sales outlook failed to reassure investors that the company will gain ground in the market for artificial intelligence software tools.

Treasury 10-year yields advanced two basis points to 3.83%.

Chris Senyek at Wolfe Research says that the Fed Chair has historically used his remarks at the Jackson Hole symposium as a way to reset expectations surrounding upcoming Fed policy changes.

“Our sense is Powell will maintain his dovish tone and signal a cutting cycle starting at the September meeting,” Senyek said. “However, contrary to what the futures market is pricing in for the remainder of 2024, we do not believe the Fed Chair will signal a cut larger than 25 basis points.”

Sam Stovall at CFRA also bets the next Fed-easing cycle will be initiated in a “more measured fashion” with a 25 basis point cut.

“This ‘slower to lower’ approach will likely be intended to signal that the Fed is not behind the curve, but will allow it to ensure that the embers of inflation have been fully extinguished before concluding that its mission has been completed,” he noted.

Corporate Highlights:

Urban Outfitters Inc. shares slid after the owner of the Anthropologie and Free People brands posted quarterly sales growth that came in below Wall Street’s expectations.
Carlyle Group Inc. is acquiring Advance Auto Parts Inc.’s Worldpac unit for $1.5 billion, striking the first major industrial investment for the firm in more than two years.
Zoom Video Communications Inc. gave a sales forecast for the current quarter that beat analysts’ estimates, suggesting its expanded suite of products is making gains with business customers.
Starboard Value LP urged Autodesk Inc.’s board to evaluate whether Chief Executive Officer Andrew Anagnost is the right person to lead the company following recent accounting issues.
Toronto-Dominion Bank posted its first quarterly loss in decades as the bank took a $2.6 billion provision for fines tied to US money-laundering investigations and saw results hurt by issues including extreme weather and wildfires.

Key events this week:

Japan CPI, Friday
BOJ’s Kazuo Ueda to attend special session at Japan’s parliament to discuss July hike, Friday
US new home sales, Friday
Jerome Powell speaks in Jackson Hole, Friday

Some of the main moves in markets:

Stocks