U.S. equities opened Friday on the back foot and, as of 11:15 AM, the benchmark S&P 500 showed no net change for the week. Market participants digested three sizeable inputs - a slip in the ISM Manufacturing Index, quarterly earnings reports from NASDAQ:AVGO and NYSE:SNOW, and August payrolls that surpassed expectations.
Trading volumes were light in the final full week of summer prior to Labor Day, a factor market veterans linked to many investors taking time away ahead of the holiday. Equity markets appeared calmer than the debt market, where 10-year Treasury yields continued their steady climb, signalling greater stress in fixed income than in stocks.
Goldman Sachs' near-term caution
In a client note this week, Goldman Sachs analyst Christian Mueller-Glissmann argued that further upside for equities will, in all likelihood, require lower interest rates rather than a pick-up in economic activity. The firm retains an overweight stance on equities for the 12-month horizon but counsels a more defensive posture in the short term.
Goldman Sachs also highlighted pressures on longer-dated bonds, pointing to fiscal concerns, competition for capital from AI-related investment, and persistent inflation - factors that constrain central banks' room to lower policy rates.
Economic data and regional surveys
The ISM Manufacturing Index dipped by one point to 54.6 in the most recent monthly survey, with softer readings in new orders, production and employment. Offsetting that national slump, a number of regional manufacturing surveys during August performed better, lifting Goldman Sachs' proprietary manufacturing survey tracker to its highest reading since April 2022.
On the jobs front, August non-farm payrolls increased by 162,000, topping consensus forecasts. Revisions to the prior two months were positive, and the three-month average for payroll gains now stands at 71,000, up from a previously reported 20,000 before Friday's release. The unemployment rate edged up to 4.14%, and average hourly earnings growth slowed to an annualized 2.8%.
Corporate results: Snowflake and Broadcom
Cloud software firm Snowflake reported revenue that exceeded expectations by 5%, and posted operating margins that came in 270 basis points above forecasts. Semiconductor and infrastructure vendor Broadcom reported quarterly results that were in line with or better than forecasts for the July quarter, but its guidance for the fiscal fourth quarter, which ends in October, landed slightly below analyst estimates.
Policy calendar and Fed commentary
The Federal Reserve is scheduled to meet on September 15-16, with the policy statement due on the afternoon of September 16 - seven trading sessions from the report's timestamp. Fed Governor Christopher Waller said this week that recent readings hint that disinflation may be taking hold. He noted that should this trend persist in data arriving over the coming two weeks, he would back maintaining the current federal funds rate.
What this means for markets
The combination of a resilient payrolls print, firm earnings in select names, and rising long-term yields has left markets in a state of guarded equilibrium. Goldman Sachs' view that lower rates are likely needed to lift equities further underscores the sensitivity of risk assets to the trajectory of interest rates, while the steady advance in 10-year yields highlights continuing headwinds for longer-duration securities.
With light summer trading and a key central bank meeting approaching, market participants remain attentive to incoming data and corporate guidance, which will further inform the near-term balance between growth optimism and rate-related limitations.