Stock Market Update

[BRIEFING.COM] The major averages are modestly lower at midday after a stronger-than-expected August Employment Report increased expectations for a September rate hike and took some momentum out of yesterday's broad advance. The S&P 500 (-0.3%), Nasdaq Composite (-0.2%), and DJIA (-0.5%) have recovered somewhat from their session lows, while the Russell 2000 (+0.2%) and S&P Mid Cap 400 (+0.3%) trade modestly higher.

The employment report showed stronger-than-expected payroll growth and a lower-than-expected unemployment rate, prompting the market to increase its expectations for another rate hike at the September FOMC meeting. The CME FedWatch Tool now assigns roughly a 60% probability to a rate hike, up from about 50% yesterday. Adding to the more hawkish policy backdrop, Cleveland Fed President Beth Hammack (voting FOMC member) said inflation remains too high, the labor market is stable, and current policy is not restrictive, concluding that "it's time to act."

The consumer discretionary sector (-1.5%) sits at the bottom of the sector standings, with weakness in several of its largest components contributing to the decline. Tesla (TSLA 352.50, -23.86, -6.34%) has given back the entirety of yesterday's rally, while lululemon athletica (LULU 100.50, -21.27, -17.47%) is one of the weakest S&P 500 components following its earnings report.

The communication services sector (-0.9%) is another notable laggard amid broader weakness across mega-cap stocks.

The information technology sector (+0.4%), meanwhile, is outperforming thanks to considerable strength across semiconductor stocks. The PHLX Semiconductor Index is up 3.3%, led by memory and semiconductor component names, helping offset pronounced weakness in software stocks. The iShares GS Software ETF is down 1.9%, with Adobe (ADBE 268.37, -17.38, -6.08%) falling sharply after naming a new CEO.

The industrials (+0.4%) and utilities (+0.2%) sectors are also trading higher.

Credit bureau and credit-scoring stocks are another point of particular weakness following comments from FHFA Director Bill Pulte regarding potential changes to the mortgage credit-scoring market. Fair Isaac (FICO 938.22, -180.71, -16.15%) is down sharply after Mr. Pulte said Fannie Mae and Freddie Mac will allow all lenders to use VantageScore, increasing competition for FICO's mortgage-scoring business. Equifax (EFX 176.95, -12.14, -6.42%) and TransUnion (TRU 78.94, -5.98, -7.05%) are also sharply lower after Mr. Pulte criticized credit reporting agencies over pricing and said he is considering a "bi-merge" system that would require mortgage lenders to pull two credit reports instead of three.

Overall, the stronger employment data and accompanying increase in rate hike expectations have interrupted some of Thursday's positive momentum, while weakness across mega-cap stocks has kept the major averages in negative territory. Still, strong semiconductor gains and pockets of strength outside the largest stocks have limited the broader decline, leaving the major averages on track for a mixed week-to-date finish.

Reviewing today's data:

• August Nonfarm Payrolls 162K (Briefing.com consensus 45K); Prior was revised to 21K from -23K, August Nonfarm Private Payrolls 127K (Briefing.com consensus 45K); Prior was revised to 71K from 30K, August Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.1%, August Average Hourly Earnings 0.3% (Briefing.com consensus 0.2%); Prior was revised to 0.2% from 0.1%, August Average Workweek 34.4 (Briefing.com consensus 34.3); Prior 34.3
  
  • The quick takeaway by the market is that this report just might persuade the Fed to raise rates at its September FOMC meeting. The key takeaway, though, is that a rate hike in September is not assured by this August data. To that end, the 3-month average for total nonfarm payrolls was still just a modest 71,000, there was a moderation in average hourly earnings growth to 3.1% from 3.2% on a year-over-year basis, and persons unemployed for 27 weeks or more accounted for 27.0% of the unemployed versus 25.5% in July.