Weekly Market Recap: August 5, 2024

The week in review

• Job openings declined to 8.184M
• Nonfarm payrolls grew 114K
• Wages grew 0.2% m/m (3.6% y/y)

The week ahead

• ISM services PMI
• SLOOS

Thought of the Week

Last week’s jobs report showed that the labor market is losing momentum at a faster than expected pace. While a 4.3% unemployment rate is still historically low, it has risen 0.6% since January, marking the fastest rise in a six-month period since the pandemic. Much attention is now turning to the Sahm Rule, an economic indicator developed by Claudia Sahm that is designed to provide a real-time signal of the onset of a recession. It has accurately signaled all 12 U.S. recessions since 1947. This week’s chart shows the four most recent recessions and how the Sahm Rule coincided with their onset. The July jobs report caused the three- month moving average of the unemployment rate to exceed its lowest level over the prior 12 months by 0.5%, triggering the Sahm Rule.

While the Sahm Rule is now causing concern, it should be noted that many other so-called recession indicators, like yield curve inversion, have been flashing red for a while without a recession occurring. While the economy contin- ues to slow, broader data, including growth and PMIs, are far from recessionary levels.

Against this backdrop, investors may want to evaluate their equity exposure, given strong performance in recent years, and focus on quality companies. Bond yields have already dropped around 65bps since the end of June, highlighting the value of bond duration in hedging equity risk. Investors may also want to correct underweights in core bonds, which can reduce portfolio volatility. Last week, while stocks were down 2%, core bonds were up 2%, reminding investors that bonds typically provide support during periods of growth concerns.

Chart of the Week: “Direct Stimulus Payments to Individuals” by Claudia Sahm (Brookings Papers on Economic Activity), FactSet, NBER, BLS, JPMAM. 3mma = 3-month moving avg., UR = unemployment rate. The Sahm Rule is an economic indicator developed by economist Claudia Sahm.

Thought of the week: “Direct Stimulus Payments to Individuals” by Claudia R. Sahm (Brookings Papers on Economic Activity), J.P. Morgan Asset Management.

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Originally Posted August 5, 2024 – Weekly Market Recap

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