Two dovish Fed voices. Two days of rallies. All eleven sectors green on Thursday. Then the August payroll number hit. 162,000 jobs. The Street expected 53,000. July — which had been reported as a loss of 23,000 jobs — was revised to a gain of 21,000. June was revised up too. In 48 hours, the market went from pricing a hold to staring at a hike. The S&P gave back 0.38% to 7,718.60. The Dow fell 272 points to 53,414.25. The Nasdaq slid 0.29% to 26,506.99. Snowflake gave back 5.1% of Thursday's 16.5% surge — profit-taking on the best earnings pop of the week. Broadcom stabilized, up a fraction. Fortinet fell 5.2% and CrowdStrike dropped 5% as the cybersecurity selloff stretched into its third day. Yields jumped. The dovish trade that Williams and Waller built on Wednesday and Thursday collapsed on Friday morning. Warsh's "discipline" is back. CPI on September 10 is the deciding vote.
Sold on strength. The S&P fell 0.38% to 7,718.60. The Dow dropped 272 points, or 0.51%, to 53,414.25. The Nasdaq slipped 0.29% to 26,506.99. Only three of eleven sectors held gains by the close — tech, industrials, and utilities. The other eight declined. The Russell 2000 bucked the sell-off and finished slightly positive. Treasury yields jumped across the curve on the payroll surprise.
| The Numbers I Circled | At the close, September 4 · Day change |
|
| S&P 500 | 7,718.60 | −0.38% |
| Dow | 53,414.25 | −0.51% |
| Nasdaq | 26,506.99 | −0.29% |
| S&P 500 Sectors | Day change |
|
| Info. Technology | | +0.4% |
| Industrials | | +0.2% |
| Utilities | | +0.1% |
| Energy | | −0.1% |
| Financials | | −0.2% |
| Health Care | | −0.4% |
| Consumer Staples | | −0.5% |
| Materials | | −0.6% |
| Comm. Services | | −0.8% |
| Consumer Disc. | | −0.9% |
| Real Estate | | −1.2% |
| | Notable Gainers | Day change |
|
| |
| |
| |
| |
| |
The August payroll report was the week's final word — and it contradicted everything the market had been building toward. Nonfarm payrolls grew 162,000, three times the 53,000 consensus. The unemployment rate held at 4.1%. But the revisions were the real story: July, originally reported as a loss of 23,000 jobs, was revised to a gain of 21,000 — a 44,000-job swing. June was revised from 20,000 to 31,000. The labor market isn't just stronger than expected. It's stronger than previously measured.
Snowflake gave back 5.1% to $338 after Thursday's 16.5% earnings surge. That's normal: a stock that jumps 16% in one session will see profit-taking the next day, especially when the broader tape is selling. The pullback still leaves Snowflake up roughly 10% on the week. Broadcom stabilized at $358, up a fraction, after Thursday's 2.7% decline. Fortinet fell 5.2% and CrowdStrike dropped 5% as the cybersecurity selloff stretched into its third day. Coherent lost 4.6%. Amazon gained 3.9% and Salesforce rose 3.1%. Caterpillar added 1.6%.
The week told a story in four acts. Monday: the U.S. and Iran traded fire, oil jumped to $90, the S&P fell to its lowest since early August. Tuesday: tankers hit in the Strait, Brent touched $95, global bond sell-off, the S&P fell again. Wednesday: Williams said "no clear signs" of a hike, Dell surged 13%, but nine sectors fell — a narrow two-stock rally. Thursday: Waller turned dovish, yields retreated, all eleven sectors closed green — the first broad rally of the week. Friday: the jobs report ripped through the dovish narrative in one number. The week opened with Iran and closed with the Fed. The market ended roughly where it started.
What The Market Is Pricing In
When the market builds a directional bet over two sessions — Williams dovish on Wednesday, Waller dovish on Thursday, yields falling, all sectors green — and then gets data that contradicts the bet, the reversal is sharper than normal. The doves had given the market permission to price a hold. Traders repositioned: they bought stocks, sold bonds, and priced September hike odds down from 60% toward 50%. Then Friday's 162,000 payrolls, plus the massive July revision, said the labor market is stronger than anyone thought. Every trader who positioned for "hold" over the last two days had to reverse. Selling bonds, selling stocks, repricing yields higher. This crowded unwinding of a one-sided bet after contradicting data is what traders call a positioning squeeze. The data didn't just change the outlook — it changed it while everyone was leaning the wrong way.
The July revision is the detail that matters most. When the government reports negative 23,000 jobs and then revises it to positive 21,000, the entire framework shifts. ADP's 38,000 — the number that powered Wednesday's rally — now looks like the outlier, not the trend. If July was really positive 21,000 and August was 162,000, the labor market wasn't weakening. It was strengthening while the market was pricing a slowdown.
Payrolls came in at 162,000 — three times expectations — and July was revised from a loss to a gain, and the market is telling you that the dovish trade of the last two days was wrong, that Warsh's "discipline" framework now has the data to support a September hike, and that CPI on September 10 is the last remaining barrier — because if inflation is still hot while the labor market is this strong, the Fed has no reason to hold. Waller himself said his September bias will be "determined by August US inflation data." He gave the market the key: CPI. If the August number shows cooling — possible if oil's decline from the $95 intraday high flows through — there's still a case for a hold. If CPI is sticky above 3%, a hike at the September 17 meeting is the base case.
In January 2023, the market entered the year expecting the Fed was done hiking. Then the January payroll report came in at 517,000 — nearly three times the 187,000 expected. The 10-year yield jumped. The S&P fell 1.1% on the day. The market had to reprice three more rate hikes it had written off. Today's 162,000 vs 53,000 is the same mechanism: the market priced one outcome and the data delivered another.
Three things I'm watching next week:
01 — August CPI: Wednesday September 10
The deciding data point. Waller said it himself — his September vote depends on this number. If headline CPI shows cooling — and the decline in oil from $95 to around $90 since Tuesday gives it a chance — hike odds drop and the market rallies. If core CPI stays above 3.3%, the hike becomes the base case and yields push above 4.80% again. Watch core services ex-housing: that's the component Warsh has called the "stickiest" piece of inflation. If it's still accelerating, the Fed moves.
02 — Does the yield reversal reverse again?
Thursday: the 10-year fell to 4.75%. Friday: it jumped back on the jobs data. The yield is now caught between two narratives — the doves (Williams, Waller) and the data (162,000 jobs, upward revisions). If yields push back above 4.80% on Tuesday — Monday is Labor Day, markets are closed — the market is pricing a hike. If they hold around 4.75-4.78%, the market is pricing uncertainty. The yield direction into CPI sets the stage for everything.
03 — The week's sector rotation: what sticks?
Monday and Tuesday: energy led, everything else fell. Wednesday: Dell and Nvidia carried a narrow rally. Thursday: all eleven sectors green on falling yields. Friday: only three held gains. The market rotated through four different sector leadership regimes in five days. That tells you there's no conviction. If CPI settles the debate, one regime wins. If it doesn't, the rotation continues and the market stays stuck between 7,630 and 7,750 until the FOMC on September 17.
The jobs report killed the dovish trade in one morning. Two days of rallies on Williams and Waller evaporated. Warsh's "discipline" has the data behind it now. CPI on Wednesday is the last barrier between the market and a September hike. If it's hot, the Fed moves. If it cools, the doves win. This is the week that decides the quarter.
Have a good weekend. Markets are closed Monday for Labor Day. I'll be back on Tuesday after the close.
— Tom Hartley
Today In Perspective · Published daily, Monday–Friday, after the close
This newsletter is for informational purposes only and does not constitute investment advice. The author is not a registered investment advisor. Past performance does not guarantee future results. Consult a qualified financial professional before making investment decisions.
