Stock futures were marginally higher on Tuesday, suggesting that Wall Street indices would open close to last week’s record highs, with analysts closely watching the end of pandemic-era jobless benefits and its impact on the labor market.
Last week, the S&P 500 Index set an all-time high, and the Nasdaq Composite briefly hitting an intraday record, despite August’s jobs data falling far short of market expectations. While payrolls showed the economy creating a relatively slim 235,000 new positions, the data stoked speculation that the Federal Reserve’s Open Market Committee (FOMC) could alter its timetable for scaling back its stimulative bond-buying, which has propped up investor confidence.
“On balance, we expect the September FOMC statement to confirm the July minutes that tapering can begin later this year,” wrote Marc Chandler, chief market strategist at Bannockburn Global Forex, in a morning research note.
“While the Fed will want to preserve the maximum flexibility, incorporating tapering into the statement would likely count as the ample notice [Fed Chair Jerome] Powell has promised in a way that notification in the FOMC minutes does not,” Chandler wrote, adding that tapering would likely begin in December.
Still, Wall Street has begun scaling back expectations for growth. Goldman Sachs cut its forecast for fourth-quarter growth, citing a “harder path ahead” for consumer spending in the face of rising COVID-19 infections.
While the ongoing COVID-19 pandemic fueled by the Delta variant figured prominently in the miss, especially for softness in the leisure, hospitality and bars/restaurant sector, some analysts have also pointed to the labor shortage becoming a drag on jobs creation. A lack of available workers have prompted businesses to hike pay, adjust hours, and even lose some business.
“With respect to no job gains in leisure and hospitality, while I’m not discounting the influence of Delta on consumer behavior for some and the supply problems out of Asia because of Covid dictated restrictions, I’m mostly blaming the lack of workers,” veteran market analyst Peter Boockvar said in a research note to clients on Tuesday.
He pointed to National Federation of Independent Business data on Friday that showed plans to hire, positions not able to fill and compensation all at 48-year highs, all records for the survey.
Still, investors have been mostly undaunted by the rise of the Delta variant, and dour data. The indexes’ latest march to record highs has been powered by technology stocks, with the Nasdaq extending a run of outperformance from August.
With the trading week shortened by Labor Day, traders will be keeping an eye on producer prices data for hints at inflation pressures, as well as the end of a crucial source of unemployment insurance during the pandemic.
Under Congress’ Coronavirus Aid, Relief, and Economic Security (CARES) Act, millions of Americans were offered additional unemployment support during the pandemic with augmented federal unemployment benefits. However, those benefits expired over the weekend, and economists think it will help bolster a labor market that’s suffered from a lack of workers.
According to a Goldman Sachs analysis, “unemployed workers whose benefits ended early saw a statistically significant increase in their re-employment probability … So we expect the benefit expiration to boost job growth in coming months.”
8:00 a.m.: Goldman sees ‘harder path ahead’ for growth
Over the long weekend, Goldman Sachs downgraded its estimates for U.S. growth, based largely on the fact that the Delta variant is having a worse-than-expected impact on services and consumption. Economists see the economy growing at an annualized 3.5% pace in the current quarter, but now sees Q4 checking in at 5.5% in Q4 (previously 6.5%).
“Although we expect the Delta setback to be brief,” the lack of fiscal support to consumers and already frothy levels of spending pose challenges to the outlook, the bank’s economists wrote:
…consumers will need to rotate from a very elevated level of spending on goods back to a normal level of spending on services. Spending on goods is likely to continue falling, though delayed purchases due to shortages of items such as new cars should slow the decline. But the rest of the service sector recovery will be much slower than the easy phase that followed vaccination, and with Covid fears likely to persist through the winter virus season, it might take a while for spending to recover in still-depressed categories such as very high-contact and office-adjacent services.
7:21 a.m. ET Tuesday: Stock futures rise
Here’s where markets were trading before the opening bell:
S&P 500 futures (ES=F): 4,538.00, +3.50 (+0.08%)
Dow futures (YM=F): 35,398.00, +45.00 (+0.13%)
Nasdaq futures (NQ=F): 15,648.50, -3.00 (-0.02%)
Crude (CL=F): $68.43 per barrel, -0.86 (-1.24%)
Gold (GC=F): $1,811.80, -$21.90 (-1.19%)
10-year Treasury (^TNX): flat, yielding 1.3220%