Russell 2000 jumps more than 1% on news that the labor market is cooling

August 29, 2023 10:14 AM PDT | By Invezz

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Russell 2000 jumps more than 1% on news that the labor market is cooling — Image source: Invezz

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Following the Jackson Hole symposium, financial market participants’ interest switched to the labor market. This area of the Fed’s mandate is more important for the central bank after Jerome Powell implied that inflation has peaked.

Therefore, any news about deteriorating labor market conditions should lead to increased bets that the Fed will end the tightening cycle. And who knows, maybe it will even ease conditions sooner rather than later.

This week is the last of the trading month, and the NFP report for August is due on Friday. But before Friday, there is a plethora of economic data related to the labor market.

One was just released earlier today, and it sent stocks higher. In particular, the Russell 2000 index jumped over 1% of news that the labor market conditions deteriorated.

Ironic, isn’t it?

The JOLTS report shows the number of monthly job openings, excluding the farming industry. As the chart below shows, the number of unemployed people per job opening is on the rise.

More precisely, the job openings number fell by 338k, the lowest since March 2021. Moreover, it is down 22% YoY.

Furthermore, hiring declined, and layoffs increased. Also, the hiring rate is below pre-pandemic levels.

The worse-than-expected labor market data triggered a bullish reaction in the stock market. Investors increased their bets that the Fed’s tightening cycle will end sooner rather than later.

Russell 2000 price forecast following the JOLTS report

Russell 2000 tracks the smallest 2000 stocks in the United States. It had traded in a tight range for over a year – a horizontal consolidation.

Conservative traders may want to wait for the index to break above the upper edge of the horizontal channel. Such a move implies further upside, with the measured move pointing to 2300.

If labor market data continues to soften, one should not be surprised to see stocks rallying for the “wrong reason.” A cooling labor market is bullish for stocks as the Fed will have more incentives to end the tightening cycle.

The post Russell 2000 jumps more than 1% on news that the labor market is cooling appeared first on Invezz.

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