Labor Market Surprises, But Fed Awaits

Scott Poore, AIF^®, AWMA^®, APMA^®

September 08, 2026

The jobs report surprised to the upside last week, but the market took that to mean a rate hike could be back on the table. The market was expecting about 55,000 new jobs, but August surprised to the upside with at least 162,000 new jobs - nearly 3 times the projection.¹ Second, July's negative jobs print of -23,000 was revised higher by 44,000 and now shows at least 21,000 jobs added in July.¹ Lastly, the June jobs figure, which wasn't a bad number, was also revised higher by 11,000.¹ According to the Cleveland Federal Reserve, August's year-over-year CPI could come in at 3.4% (even with last month's reading).² Futures on September's rate hike odds, however, have moved higher to 60% after it was roughly a 50:50 toss-up earlier last week.³ This week's release of the August Producer Price Index and Consumer Price Index could prove quite important as to how the Fed may vote on interest rates in next week. While rate-hiking cycles tend to lead to lower market returns, not all rate hikes are bad. When the Fed has hiked rates after leaving rates alone for 2 years or longer, the results can vary based on the size of the hike. For example, as shown in the table, when the Fed hikes only 25 basis points, the first few months typically turn lower, but the longer-term results are higher on average. A 25 basis point rate hike has seen the S&P 500 turn lower by more than 2% on average the following three months. However, a 50 basis point rate hike after a hiatus, like the one in 2022, saw the S&P 500 down at least 4% over 3 months, but also lower by 10% twelve months afterward. Treasury markets could be preparing for a rate hike, as well, as the 10-year Treasury Bond has increased 39 basis points since reaching a two-month low on June 26th.⁴ Somewhat related, the 30-year mortgage rate reached a 1-year high of 6.71% this week, which does not help potential buyers in the real estate market.⁵ Market concentrations and investors behavior continue to exhibit historical tendencies. In March of 1999, Pensions & Investments published an article challenging the wisdom of the Brinson-Hood study that nearly 90% of returns come from the asset allocation decision.⁶ Just a few months before that article was published, William J. Bernstein, co-founder of the "efficient frontier", dedicated an article to the defense of the investing philosophy after the media had asked "What good is diversification anyway?"⁷ Investors tend to forget diversification until it typically demonstrates its value during bear markets. In 1999, fixed income far under-performed the broad equity market (see graph above). Yet, when the Dot.com bubble burst in 2000, fixed income far out-performed, once again, demonstrating the need for diversification as a 60:40 mix between equity and fixed income held up much better than the broad equity market. A reasonable assessment of risk and portfolio diversification could prove helpful given the current market concentration environment.

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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