The month of September has been the worst-performing month for stock market investors historically, and this trend continued in 2022 as well. In September 2022, the S&P 500 index fell 9.3%, while the Nasdaq Composite Index declined 10.5%, and the Dow Jones index was down 8.8%.
The equity markets ended the last trading session of September in the red soon after the Commerce Department’s PCE Price Index report indicated inflation accelerated more than expected in August. Each of the three indices fell more than 1.5% on Friday.
The Vice Chairman of the Federal Reserve, Lael Brainard, emphasized the regulatory body will continue to tighten monetary policy to offset inflation and confirmed it wouldn't pull back on these efforts prematurely.
In the upcoming week, the labor market of the United States will be under the spotlight, as the nonfarm payrolls report will be released for September on Tuesday by the Labor Department. Further, the JOLTS or Job Opening and Labor Turnover Survey report for August and ADP’s private-sector report will also be released this week.
These reports will provide us with insights into the labor market of the United States and how it has held up against the Fed’s hawkish monetary policy strategies. The purchasing manager index (PMI) survey reading and the Institute for Supply Management will offer updates on recent performance of the U.S. manufacturing sector.
Job market data
According to experts, the JOLTS report might indicate a scale back of job openings to 11.1 million in August from 11.2 million in July. Job openings stood at an all-time high of 11.9 million in March 2022. The JOLTS report will also showcase the total number of hires, separations, and quits.
ADP, which is a payroll provider, will release the National Employment Report tracking growth in private-sector payrolls for September on Wednesday. It will offer a preview of what to expect from the Labor Department’s detailed jobs report on Friday.
Economists expect the nonfarm payrolls report to show 250,000 job additions in September, down from 315,000 additions in August. While the hiring pace slows, the unemployment rate is expected to remain unchanged at 3.7% amid a tight labor market.
The U.S. jobs market has demonstrated resilience in 2022 despite rising interest rates which could very well topple the economy into a recession. In fact, the labor market recovered all job losses at the onset of COVID-19 as of July 2022.
PMI Survey data
The S&P Global will publish the Manufacturing PMI survey on Friday for the month of September. This tracks business activity and executive confidence within goods-producing sectors.
The PMI index rose marginally to 51.8 last month, from 51.5 in August, compared to a pandemic-era high of 63.4 in August 2021. A PMI reading of below 50 is an indicator of deteriorating business conditions.
In 2022, supply chain disruptions, falling customer demand, and higher commodity prices have all contributed to a slowdown in the manufacturing sector this year.
In addition to the macroeconomic data, the equity markets will be impacted by corporate earnings for Q3 later this month. A strong U.S. dollar might act as a massive headwind for companies in the next year.
The USD is trading at a two-decade high and might be a major headwind for several companies. The DXY, also known as the U.S. dollar index, is up 21% year over year. For every 1% change in the DXY, the S&P 500 earnings will fall by 0.5%. So, in Q4, the S&P 500 earnings might fall by at least 10%.
Why is a strong USD bad news for S&P 500? A strong dollar generally results in lower exports. So, companies with a higher percentage of international sales will be hit hard. The wild swings in currencies further pressurized the global economy, which is already wrestling with interest rate hikes and red-hot inflation.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.