SPY, QQQ Fall After Jobs Report Miss

SPY still remains near all-time highs following August’s labor report.

Stock ETFs fluctuated after the government reported that employers added slightly fewer jobs than expected in August.

Nonfarm payrolls increased by 142,000 during the month, according to the latest data from the Bureau of Labor Statistics. That was below the 165,000 that economists were expecting.

At the same time, the unemployment rate ticked down from 4.3% to 4.2%, as expected.

The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) were last trading lower by 0.5% and 1%, respectively, as some investors worried about a weakening economy, while others were relieved that the jobs numbers weren’t worse.

Last month, investors were jolted when nonfarm payrolls increased by 114,000, much less than the 185,000 that was expected. The figure set off a steep sell-off in the stock market, pushing SPY nearly 9% below its high.

SPY bounced back after that rout, nearly matching its record highs last week. The ETF is currently down around 2.5% from its high. 

Bulls vs Bears 

Friday’s jobs report had something for both bulls and bears. 

On the one hand, job creation of 142,000—while lower than expectations—is a solid rate that suggests the economy continues to grow and isn’t in a recession.

Likewise, a reduction in the unemployment rate from 4.3% to 4.2% is positive, and puts the rate below the nearly three-year high set in July.

On the other hand, the government reported downward revisions to jobs gains for the past two months. 

July’s jobs growth was revised down from the 114,000 initially reported to 89,000, while June’s jobs growth was revised down from 179,000 to 118,000.

Taken together, the data suggests that the labor market has cooled significantly this year. 

Is this a reflection of a soft landing, where the economy continues to grow at a modest pace? Or is it an early sign that the economy might slip into a recession?

That’s the question that the Fed will be pondering as it gears up to make its next monetary policy decision on Sept. 18.

Investors have been split on whether the U.S. central bank will kick off its rate cutting cycle with a 25 or 50 basis point reduction in the federal funds rate.

August’s mixed jobs report didn’t seem to offer any more clarity on that front. Probabilities based on federal funds futures suggest that there is a 60% chance of a 25 basis point cut and a 40% chance of a 50 basis point cut.