Markets had another shaky session on Thursday. A stronger-than-expected US manufacturing report sounded good on the surface, but it sent bond yields climbing and stocks stumbling yet again. The reason? Investors read it less as “growth is healthy” and more as “inflation might be sticky, and the Fed could hesitate on cutting rates.”
It’s a familiar contradiction in markets: good economic news that turns into bad market news.
Manufacturing Picks Up — Fastest Since 2022
The report showed factory activity expanding at the quickest pace since 2022. On paper, that looks like a solid sign of resilience. But here’s the twist—resilience in manufacturing also means demand is strong enough to keep price pressures alive. And if inflation doesn’t cool further, the Fed won’t feel comfortable rushing into aggressive rate cuts.
The bond market reacted almost immediately. Treasury yields climbed across maturities, with the 10-year rising about three basis points to 4.32%. Not an earth-shattering move, but enough to rattle equity traders who have already been uneasy.
Stocks Extend Their Slide
The S&P 500 notched its fifth consecutive daily decline. Losses weren’t as brutal as they looked earlier in the day—some megacaps managed to claw back ground—but the overall tone remained negative.
One drag came from Walmart. The retailer delivered a disappointing profit figure, which overshadowed its stronger outlook. If a company like Walmart, with its sheer size and reach, shows signs of strain, investors tend to take notice.
So, between rising yields and wobbly corporate earnings, stocks didn’t have much room to breathe.
All Roads Lead to Jackson Hole
Now, the timing of this data couldn’t be more awkward. The Federal Reserve is kicking off its annual Jackson Hole Economic Symposium, a gathering that usually sets the mood for monetary policy discussions worldwide.
This year’s theme? Structural shifts in the labor market. But let’s be honest: everyone’s really waiting for Jerome Powell’s Friday speech.
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Markets had been pricing in a September rate cut with near certainty just a week ago. After the manufacturing surprise, that conviction slipped—probabilities are closer to 70% now. Still high, but not a lock. And investors hate uncertainty.
Rick Gardner at RGA Investments summed it up well: “On the eve of Powell’s commentary, the market needs some reassurance. Without it, worries about the labor market only get louder.”
What the Fed Officials Are Saying
Before Powell, a few Fed voices have already chimed in. Kansas City Fed President Jeff Schmid noted that inflation risks are still slightly higher than labor risks. That’s central banker language for: “We’re cautious about cutting rates too quickly.”
His comment also carried a subtle reminder that when you’re close to your policy targets, decisions get harder. Margins matter, and the Fed doesn’t want to misstep.
Atlanta Fed President Raphael Bostic struck a similar balance. He’s still projecting one rate cut this year, consistent with his earlier outlook, but he admitted the labor market looks “potentially troubling.” In plain English: the Fed sees both progress and problems.
Momentum Stocks Take a Hit
Outside of macro chatter, another theme was sharp selling in momentum stocks. These are the high flyers that tend to swing hard when market sentiment turns. Some see this pullback as a warning sign, but others—Goldman Sachs’ trading desk among them—suggest it might be a buying opportunity.
Goldman pointed to history: when its momentum basket fell 10% or more in a five-day stretch, it bounced back 80% of the time in the following week. Median return? Roughly 4.5% in seven days, and more than 11% in a month. That doesn’t guarantee anything, of course, but it’s a stat that dip buyers like to keep in their pocket.
The Bigger Picture: Good News Can Spook Markets
What’s happening here isn’t new. Stronger economic reports sometimes make investors nervous because they raise doubts about policy easing. The irony is hard to miss—growth that looks healthy on Main Street can translate to pain on Wall Street.
It’s also part of why markets have been so jumpy this summer. Every major data point—jobs, inflation, manufacturing—reshapes expectations for the Fed. And those shifting expectations send bonds and stocks bouncing in opposite directions. Volatility is the price of uncertainty.
What to Watch Next
Everything now hinges on Powell’s tone in Jackson Hole. If he signals confidence in cutting rates soon, markets may finally catch a breather. If he leans more cautious, expect more swings.
It’s worth noting that this isn’t just about September. The Fed’s entire roadmap for the rest of the year is at stake. Traders want clarity on whether we’re looking at one cut, two cuts, or just a long pause.
Until then, the market feels stuck—caught between optimism about growth and fear that the Fed will hold rates high for longer. It’s a tug-of-war, and no side has a clear win yet.
Final Thoughts
Thursday’s action served as a reminder that markets aren’t just reacting to numbers, but to the narratives behind them. Strong manufacturing doesn’t simply mean healthier factories—it means the Fed may hesitate, yields may rise, and stocks may falter.
And tomorrow, Powell’s words will either calm those fears or feed them further. Investors, as always, are bracing for impact.
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