US August non-farm payrolls were hotly anticipated for several reasons, not least because Federal Reserve chair Jerome Powell told investors he was more concerned about the health of the labour market than accelerating inflation at his Jackson Hole symposium speech on 23 August.

July’s big miss, which showed 114,000 jobs created versus 190,000 expected by economists, set the scene for a ‘make or break’ reading on Friday (6 Sep) with investors hoping for confirmation of either a soft or hard landing.

Strategists at Bank of America framed the situation as follows; if August payrolls came in below 100,000 then the economy was already in trouble and investors should prepare for a hard landing.

Under this scenario the Fed would likely cut by half a percentage point on 18 September, Brent crude prices would sink towards $60 dollars per barrel and the Japanese yen would strengthen to around JPY 135 to the dollar.

On the other hand, a payroll reading between 150,000 and 175,000 would revive hopes the Fed was capable of achieving a soft landing which could prompt a renewed rally in technology and energy stocks while defensive sectors would lag.

The case for this would be boosted were the central bank to cut rates by half a percentage point.

The real world is rarely as neat and tidy as forecasters would like and the actual number came in at 142,000, higher than July’s reading but shy of consensus forecasts calling for 165,000 new jobs.

Stocks initially rallied while the US dollar hit session lows as investors interpreted the jobs report as ‘soft’ enough to allow the Fed to cut rates.

By the close of play, however, the benchmark S&P 500 index had sunk almost 2%, capping its worst week since March 2023, while bond yields fell.

It is hard to pin down exactly why stocks fell so heavily but investor skittishness has been on the increase ever since July’s weak jobs report, sparking fears about the health of the economy, and August’s Japanese yen carry trade unwind.

Other factors include last week’s $400 billion sell-off in AI darling Nvidia (NVDA:NASDAQ) after the company was subpoenaed by the Department of Justice for potentially breaking antitrust laws.

Its heavy weighting in both the Nasdaq index and Philadelphia semiconductor index dragged down other large-cap technology and semiconductor names as investors took profits.

Lastly, seasonal factors could be at play as the market enters one of the most dangerous periods of the calendar for stock investors. September and October have historically inflicted some of the worst losses for equities. 

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