Welcome to my latest video presentation. The article below is a condensed transcript; my video contains additional details and several charts.

I trust you enjoyed your Labor Day holiday. I manned the gas grill, indulged in my favorite libation of cold beer, and tried to forget Wall Street for a couple of days. But…well, it’s Tuesday and the three-day weekend is over. Unofficially, summer is over, too.

However, the topic of American labor continues to loom large over the stock market.

This past week, key reports on the U.S. jobs market conveyed signs that the economy is decelerating after an extended period of rapid gains. The cooling of jobs growth increases the odds that the Federal Reserve will hit the pause button on its interest rate tightening cycle when the central bank next meets September 19-20. A pause, of course, would be a bullish catalyst for the stock market.

A softening labor market and economy are likely to put downward pressure on U.S. Treasury yields, which in turn would benefit interest rate sensitive equities in such sectors as technology.

That said, we just closed the books on a dismal month. The main U.S. stock market indices slumped in August as follows:

The Dow Jones Industrial Average -2.4%; the S&P 500 -1.7%; the NASDAQ -2.2%; and the Russell 2000 -5.4%. However, stocks kicked-off September on a positive note and finished the week higher (see my video for charts).

Crude oil prices jumped an impressive 7.6% last week, amid tight supplies and optimism over the economy.

The U.S. Bureau of Labor Statistics reported last Friday that total nonfarm payroll employment increased by 187,000 in August, versus 170,000 estimated. The unemployment rate rose to 3.8%.

The data showed a moderating but still resilient jobs market. Softer employment numbers are likely to translate into dampened consumer consumption. Rate hikes are starting to take their toll, as the inflation fighters planned, but the economy doesn’t seem on the verge of a recession.

The betting on Wall Street is that these “Goldilocks” conditions will prompt the Fed to not only pause this year, but actually start to cut rates in mid-2024. It’s usually a fool’s game to make predictions that far into the future, but the trend is clear: the Fed is nearing the end of tightening. History shows that stocks surge in the immediate wake of a Fed cut.

High interest rates adversely affect discounted cash flow valuations, which can hurt high-growth stocks, particularly in the technology sector. When the Fed gets dovish, which is expected to happen sometime around May 2024, risk-on growth stocks will be embraced again with confidence.

The federal funds rate currently hovers at 5.33%. The Fed hiked interest rates by 25 basis points to 5.25%-5.50% at its July 2023 meeting. Over the long-term, the fed funds rate is projected to trend around 4.75% in 2024 and 3.75% in 2025.

This confluence of factors is supporting the stock market’s momentum. The S&P 500 currently hovers above its 50- and 200-day moving averages, which tells us that the prevailing trend is bullish.

Likewise, the New York Stock Exchange Advance/Decline line (NYAD) also hovers above its 50- and 200-day moving average. The NYAD tells us how many stocks are participating in a stock market rally or decline. Right now, the rising NYAD signals healthy market breadth.

The week ahead…

Here are the major economic reports scheduled for release during the holiday-shortened week:

Factory orders (Tuesday); S&P final U.S. services PMI, ISM services, Fed Beige book (Wednesday); initial jobless claims, speeches by various Fed governors (Thursday); wholesale inventories, consumer credit (Friday).

Despite these positive trends, September historically has been the worst month for stocks. We’ll see if last week’s gains were the start of a new leg up for the stock market, or a last hurrah before the autumnal doldrums set it.

But you can still make money, in up or down markets, by heeding the advice of my colleague Jim Pearce.

Jim Pearce is the chief investment strategist of Mayhem Trader. Jim doesn’t worry about market mayhem…he methodically makes money from it.

Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.

John Persinos is the editorial director of Investing Daily.

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