Bullish investors got a sour start to the long weekend, as stocks sold off indiscriminately on Friday after a mixed jobs report that traders believe makes it more likely the Fed will raise rates later this month. The market has bounced wildly over the past three weeks, mostly because of fluctuations in Chinese economic data and stocks. But Friday’s fall was entirely homegrown, given that the Chinese market was closed for a holiday.

“It was an emotional reaction to the jobs report and the Fed,” says Ryan Larson, head of equity trading at RBC Global Asset Management. “There’s not much behind it beside emotion. It should really be seen as a good thing when the Fed thinks the economy is strong enough on its own.”

The U.S. added 173,000 jobs in August, well below expectations for 217,000. But previous months were revised higher by 44,000, and other data also reinforced a healthy labor market—wages are up 2.2% year over year and corporations are replacing part-time workers with full-timers, a good sign for the economy.

“Full-time jobs surged 435,000, which is incredible—in fact, the big story here is that in the past two months, amid a sea of global turbulence, corporate America had enough confidence in the domestic economic outlook to boost full-time employment by a cool one million, as 750,000 part-time positions were replaced,” writes David Rosenberg at Gluskin Sheff.

Of course, every good sign for the economy comes with a caveat: Traders are convinced the Fed is now more likely to raise interest rates this year. Futures markets now predict about a 30% chance of an interest hike this month, and a nearly 60% chance in December.

The Dow Jones Industrial Average fell 541 points, or 3.2%, on the week, to 16,102.38. The Standard & Poor’s 500 index dropped 68 points to 1921.22. The S&P, which has fallen for two of the past three weeks, is down 9.8% from its closing high in May. The Nasdaq Composite fell 144 points, or 3%, to 4683.92.

All of the S&P 500 sectors fell at least 2% on the week, although utilities, health care, and financial stocks were particularly weak. Energy stocks gave up more ground as oil prices fluctuated, with Nymex crude falling nearly 8% on Tuesday before recovering to end the week up 1.8% at $46.05 a barrel.

The volatility is clearly spooking some investors—retail investors have reduced equity allocations by 2.4 percentage points in August to 65%, according to the American Association of Individual Investors. That’s the lowest percentage allocated to equities in 10 months. Maybe they heard that the market tends to fall in September; it’s the only month of the year where the average performance of the Dow is negative over the last 100, 50, and 20 years, according to Bespoke Investment Group.

China has caused much of that anxiety, as investors fear the stock selloff and economic slowdown could be contagious. Earlier in the week, U.S. stocks dropped on data showing Chinese manufacturing had fallen to a three-year low. The data throw into doubt China’s projections that its economy will grow 7% this year.

Stock market volatility is likely to continue until the Fed meeting on Sept. 16-17. Vacationing traders may also keep one eye on Chinese markets on Monday to see how they open following the two-day holiday there.

(Source: Barrons Online)

After a stormy week that saw stocks push into correction territory Monday, down more than 10% from the highs, the market reversed and finished up 1.1% for the five-day span. At one point Tuesday, the sixth straight day of losses, investors endured a 12% intraday drop from 2015 highs. The relief from volatility is unlikely to last, as the guessing game over when the Federal Reserve will raise interest rates goes on, at least until the U.S. central bank’s Sept. 16–17 meeting.

The damage to market sentiment has been done. Stocks fell 6% the previous week on worries about a global growth slowdown induced by China. That drop intensified in the first part of last week, until New York Fed President William Dudley said Wednesday that given market volatility and foreign developments, a hike at the September meeting “seems less compelling to me than it did several weeks ago.”

But just when the market got accustomed to the new idea that the Fed might not hike rates next month, Fed Vice Chairman Stanley Fischer said on CNBC Friday that it was too early to tell whether a hike is more or less compelling.

The Dow rose 183 points, to 16,643.01, last week, while the Standard & Poor’s 500 index gained 18, or 0.9%, to 1988.87. The Nasdaq Composite jumped 2.6%, or 122, to 4828.32.

“It was an exhausting week, where it felt bad on the way down and just as bad on the way up,” says Brian Reynolds, chief market strategist for New Albion Partners. Many investors missed the quick rebound, watching stocks they’d just sold then go back up. “Investors remain jittery and nervous,” he says.

Blame that on discordant Fed chatter. The Fed maintains that a rate decision will be “data driven,” says Kim Forrest, senior equity analyst at Fort Pitt Capital Group. “If the data continue as is, the Fed will be forced to raise this year,” she says. “September is still on the table.” Should the Fed ignore the data, it will lose credibility, she adds.

“Volatility will remain until the [Fed’s] first move,” says Peter Jankovskis, co-chief investment officer at Oakbrook Investments. He expects a hike by year end but probably not in September. To a degree, he says, the Fed likes to keep the market guessing, as it gives its policy moves more influence.

U.S. data show the economy continues to expand with little sign of inflation: Second-quarter gross domestic product was revised up to 3.7% from the previous 2.3% reading. July durable-goods orders rose 2%, the second consecutive monthly rise.

The fed-futures market, which has a pretty good track record in the past two years, puts the chance of a hike in September at less than one in three the Federal Reserve would raise interest rates in September.

(Source: Barrons Online)