What strong jobs data means for rates — plus, an out-of-favor trade shines this week
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
Stocks dipped on Friday following the strong August employment report. Still, the S & P 500 was on track for a positive week.
Nonfarm payrolls increased by 162,000, compared to expectations of 53,000. There were also positive combined revisions of 55,000 for June and July. Notably, the 44,000 positive revision for July flipped the month from a 23,000 loss to a 21,000 gain.
The unemployment rate last month was unchanged at 4.1%, while the labor force participation rate nudged up to 61.6%. Last month, the market took the bad July report as good news, and on Friday, it took the good August report as bad news simply because of what it means for monetary policy expectations.
The probability of an interest rate hike after the Federal Reserve's September 15-16 meeting is now up to nearly 60% compared to 50% on Thursday, 57% one week ago, and 58% one month ago, according to CME FedWatch. Hike or no hike, we always prefer to see a strong jobs report over a weak one because it's better for the economy. When the labor market is healthy, more people are finding jobs, and wages are rising.
We won't root for the opposite. AI buildout stocks were a bright spot amid their rough patch. Three of the five best-performing stocks in the portfolio this week were semiconductors, with Micron , Intel , and Nvidia all gaining about 6%.
A hyperscaler, Meta Platforms , was the fourth best with a gain of roughly 5% as investors circled back after last week's positive teen addiction settlement and decided to focus on a new update to its Muse Spark model. The fifth-best in the portfolio was Cardinal Health , which Jim Cramer profiled on Wednesday's Mad Money.
The losers were a mixed bag . Palo Alto Networks fell 10% this week even though the premier cybersecurity company topped Wall Street expectations for the quarter and provided a better-than-expected outlook for its new fiscal year, driven by increased customer engagement amid AI-related concerns.
Our next three worst performers — DuPont , FedEx Freight , and Honeywell Technologies — were victims of rising oil prices (FedEx Freight on the surge in diesel ) and the ongoing conflict in the Middle East (DuPont and Honeywell have revenue exposure there).
Fifth worst was Broadcom , which received a lukewarm reaction to bullish AI revenue guidance due to concerns about the company losing share in Alphabet 's custom chip program and whether it is too reliant on Anthropic and OpenAI. The big corporate event in the portfolio next week is Apple 's new product launch event Wednesday, the first one led by new CEO John Ternus.
The expectation is that Apple will announce a new foldable iPhone as well as other product updates. Apple's pricing strategy for new devices amid rising memory costs will be a conversation topic in the days that follow. There are a bunch of Wall Street conferences to tune into and transcripts to read.
Conference season gives management teams a chance to update investors on how the quarter is progressing and shape expectations ahead of earnings. No portfolio companies report earnings next week, but some notables include Casey's, Chewy, AeroVironment, American Eagle Outfitters, Macy's, Oracle, Adobe, and Kroger.
On the economic data side , two of the government's key inflation reports — the producer price index on Thursday and the consumer price index on Friday — will be scrutinized. Recall, a day ago, stocks and bonds rallied after Fed Governor Christopher Waller said he's in favor of keeping rates steady as long as there are no surprises in the upcoming inflation data.
While Friday's strong jobs report gives the Fed some cover to hike at its September meeting, tame inflation reports could spark a case for no change. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade.
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