Good morning! September is living up to its reputation as the weakest month of the year for investors.

All three major stock indexes finished last week in the red after we saw a flurry of soft economic data.

This week, inflation is the focus.

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Job weakness spooks investors

The S&P 500 hasn’t dropped 4.1% in a week since Silicon Valley Bank and other regional lenders imploded in March 2023. 

At least that was the case until Friday, which brought the third weak jobs report in as many days. 

The US added 142,000 non-farm jobs in August, below the forecasted 160,000, according to the government data.

Meanwhile, the unemployment rate fell to 4.2% from 4.3%.

“There is no way to spin this report as strong, but we don’t see it as evidence of an imminent recession,” said Seth Carpenter, Morgan Stanley’s global chief economist.

“The modest retracing in the unemployment rate allows for wide interpretation. Either it did not really move, or smoothing through a few months, the apparent sharp rise last month was really just a continuation of a gradual trend.”

What else we learned: 

Just one week into September and all gains made in August have been erased. 

“While the bears have plenty to work with — in terms of a softening labor market and a slowing economy — the facts still show an economy that is expanding and not one that is imminently headed into recession,” said Chris Zaccarelli, CIO of Independent Advisor Alliance. 

Now, the market chatter leading up to the jobs report had hoped for clarity on whether the Fed would be moderate or aggressive with its first interest rate cut next week. 

As of late Sunday, CME data showed 70% odds for a 25-basis-point cut, and 30% odds for a larger half-point cut. 

That could change this week as inflation comes due on Wednesday.

Wall Street estimates CPI will hit 2.6% compared to a year ago, cooler than the 2.9% seen in July.

If that holds, it would be the lowest print since March 2021. 

“Although we are still looking for the Fed to start a series of 25bp rate cuts at the upcoming meeting, bigger cuts are on the table, because our read of the jobs report sees heightened risks that the slowdown will be more than our baseline assumes,” Carpenter said. 

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Elsewhere:

🛍️ Consumers are turning more cautious. The post-pandemic shopping spree appears to be winding down. Retailers have issued plenty of warnings about business in the coming months, and everyday Americans are feeling the pain of accumulated price increases. (Business Insider)

🇨🇳 China has stopped its gold-buying spree. The People’s Bank of China has not added gold to its reserves for four months in a row. Before that, it had added gold to its coffers for 18 consecutive months as the precious metal saw a strong price rally. In 2024, bullion has gained more than 20%. (Bloomberg)

🏦 What if the Fed had acted earlier? Some central bank critics have wondered if policymakers could have curbed inflation from the jump if they hiked rates several months earlier than they ultimately did in 2022. That hypothetical raises a key question: Would people be in better or worse shape if things were less expensive but the unemployment rate was far higher? (TKer)

Rapid-fire:

Last thing:

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