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The Dow Jones Industrial Average concluded a strong week with a slight gain on Friday, influenced by the latest U.S. jobs report. The 30-stock Dow rose by 115.80 points, or 0.33%, finishing the day at 34,837.71.
Meanwhile, the S&P 500 rose by approximately 0.18% to close at 4,515.77, while the tech-heavy Nasdaq Composite index slightly retreated, ending down 0.02% at 14,031.81.
Last week, the Dow and the Nasdaq advanced 1.4% and 3.3%, respectively, marking their best performances since July. The S&P 500 gained 2.5% last week and had its strongest week since June.
The most recent U.S. nonfarm payrolls data revealed that the unemployment rate edged up to 3.8% in August, marking its highest point in over a year. This came as a surprise to economists, who had forecasted it to stay at 3.5%.
Additionally, average hourly earnings saw a year-over-year rise of 4.3%, falling short of the 4.4% increase that economists polled by Dow Jones had anticipated. This could indicate a slowing economy and lessening inflationary pressures.
Although August's payroll numbers showed quicker-than-expected growth, adding 187,000 jobs, there were downward revisions for the prior two months. The job figures originally reported for June and July were collectively reduced by 110,000.
Are interest rate hikes coming to an end in the U.S.?
In an interview with CNBC, Steve Wyett, chief investment strategist at BOK Financial explained last Friday, “It would be a mistake to look at today’s employment report, along with recent data, and say the Fed is done. Even though trends in inflation are moving the right direction and a broader view of the employment market would indicate wage pressures should abate, overall economic growth is above trend and inflation remains well above the Fed’s recently confirmed 2% target.”
The CME Group’s FedWatch tool indicated traders now expect a 93% chance for the Federal Reserve to hold interest rates at current levels at its next policy meeting later this month.
This Wednesday, the Federal Reserve is set to release its updated Beige Book, a regular snapshot of the U.S. economy that comes out eight times annually and covers all 12 Fed districts. The forthcoming edition may paint a picture of an economy holding firm, even in the face of challenges.
Despite the Fed's rate increases and sustained high inflation, consumer expenditure—which constitutes over two-thirds of the U.S. GDP—remains resilient. Additionally, unemployment continues to hover near its lowest levels in decades.
All eyes on China
Next week, attention will also be on China as it is slated to unveil its inflation data for August. This is particularly significant as China's economy, the second largest in the world, experienced deflation last month.
Consumer prices declined 0.3% year-over-year and are expected to have seen a minor uptick of 0.1% annually in August. China's economic landscape is presently fraught with challenges, including rising debt levels, declining exports, a collapsing property market, and elevated youth joblessness.
Deflation typically gains ground during economic slumps as households put off spending, expecting prices to drop further. This, in turn, affects businesses and their profitability, compelling them to reduce staff, which further curtails consumer spending. The trend initiates a vicious cycle of economic decline that poses significant challenges for government and central bank interventions.