Stocks churned at the end of a challenging month, with traders parsing mixed economic data and awaiting a key jobs reading to gauge the outlook for Federal Reserve policy. Bond yields fell. The dollar rose.

The S&P 500 finished with a small loss on Thursday, while notching its first monthly slide since February. Aside from consolidation after this year’s rally, traders cited concern that the Fed will keep interest rates higher for longer to prevent a flare-up in price pressures. Treasury 10-year yields extended their retreat after hitting an almost 16-year high last week.

In late trading, Dell Technologies Inc. climbed after reporting better-than-expected sales of personal computers and data center hardware. Broadcom Inc., one of the world’s five biggest chipmakers, gave a disappointing forecast for the current period, signaling that demand for electronic components remains sluggish. Lululemon Athletica Inc. lifted its full-year outlook, citing advances in market share while underscoring how demand for the activewear brand is staying robust.

The Fed’s preferred measure of underlying inflation saw the smallest back-to-back increases since late 2020, encouraging consumer spending. Markets took the report in stride, with the numbers illustrating the divergence within the U.S. economy, according to Jeffrey Roach at LPL Financial.

Wall Street is now bracing for Friday’s labor-market data, which will provide further insights on the Fed’s next steps. The report is forecast to show employers boosted their payrolls by nearly 170,000 in August, while the unemployment rate held at a historic low of 3.5 per cent. 

“Given the continued strength in the labor market and the fact that the economy is still growing above trend, the Fed will view inflation as cooling, but not sufficiently cool,” said George Mateyo, chief investment officer at Key Private Bank.

More than 60 per cent of investors surveyed by 22V Research expect softer-than-estimated August payrolls data, while 78 per cent see wage inflation at or below consensus. Meantime, 49 per cent of them said the report will be “risk-on” and only 24 per cent expect a “risk-off” reaction.

FED OUTLOOK

The Fed may be slower to cut rates than many market participants expect, said Bridgewater Associates Co-Chief Investment Officer Karen Karniol-Tambour. 

“When you look at what it takes to get fast rate declines, usually you need the economy collapsing pretty quickly,” she said in an interview for an upcoming episode of Bloomberg Wealth with David Rubenstein. “That’s very far from where we are today.”

Fed Bank of Atlanta President Raphael Bostic said policymakers need to be cautious not to overtighten monetary policy and risk unnecessary harm to the U.S. labor market.

Swap markets placed roughly even odds the Fed will boost rates in November by a quarter point.

Corporate Highlights

• Intel Corp. climbed as its chief said he’s “feeling good” about the chipmaker’s quarterly outlook.
• Software companies Salesforce Inc. and CrowdStrike Holdings Inc. gained on bullish forecasts.
• Ciena Corp. rallied after the communications-equipment company reported results that beat expectations.
• Dollar General Corp. fell after cutting its profit forecast for the second straight quarter amid rising labor costs and “softer sales trends.”
• Palantir Technologies Inc. dropped after being downgraded to underweight at Morgan Stanley — the latest indication of how Wall Street is skeptical of the software company, which has touted itself as a major player within artificial intelligence.

Key events this week:

• China Caixin manufacturing PMI, Friday
• Eurozone S&P Global Eurozone Manufacturing PMI, Friday
• South African central bank governor Lesetja Kganyago, Atlanta Fed President Raphael Bostic, BOE’s Huw Pill, IMF’s Gita Gopinath on panel at the South African Reserve Bank conference, Friday
• Boston Fed President Susan Collins speaks at virtual event, Friday
• U.S. unemployment, nonfarm payrolls, light vehicle sales, ISM manufacturing, construction spending, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average fell 0.5 per cent
• The MSCI World index fell 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro fell 0.7 per cent to US$1.0843
• The British pound fell 0.4 per cent to US$1.2668
• The Japanese yen rose 0.5 per cent to 145.49 per dollar

Cryptocurrencies

• Bitcoin fell 4.1 per cent to US$26,135.27
• Ether fell 2.8 per cent to US$1,656.46

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.09 per cent
• Germany’s 10-year yield declined eight basis points to 2.47 per cent
• Britain’s 10-year yield declined six basis points to 4.36 per cent

Commodities

• West Texas Intermediate crude rose 2.4 per cent to US$83.56 a barrel
• Gold futures fell 0.3 per cent to US$1,966.70 an ounce