Flash PMI Data Show Job Creation Weakened Further in September

*September Flash PMI pointed to a soft landing and slower job creation

*The market will focus on Fed language this week to gauge the potential cadence of rate cuts

*We don’t think we’ll have a clearer picture until receiving next week’s data

*Plus, what we’re watching next for five holdings

After the Dow hit a fresh record high on Monday, the market rally looks to continue on Tuesday. Helping provide some of that lift on Tuesday morning are reports of China’s central bank unveiling a broad package of monetary stimulus measures to jumpstart its economy.

People’s Bank of China (PBOC) governor Pan Gongsheng announced that the bank will cut a key short-term interest rate, that the PBOC will open their equivalent Fed lending window directly to non-bank investors and he unveiled plans to reduce the amount of money banks must hold in reserve to the lowest level since at least 2018.

Despite September’s reputation for being a challenging month, with five trading days left to go in the month, so far, the S&P 500 and the Nasdaq Composite are up 1.2% and 1.4%, respectively, month to date. It’s also lifted a number of our holdings so far this month, with notable gains in Builders FirstSource BLDR, Dutch Bros BROS, Meta META and United Rentals URI.

Those market gains have once again pushed the market into short-term overbought territory and stretched the S&P 500’s P/E valuation to 23.6-times consensus 2024 EPS. However, 2H 2024 EPS growth levels compared to 1H 2024 have continued to soften and stood at 6.8% coming into this week, down from 11.2% at the end of July.

Coming off Monday's S&P Global’s Flash PMI report that showed U.S. business activity “remained robust in September… signaling a sustained economic expansion…”

However, the report also noted that order books moderated, while business expectations softened with survey respondents citing uncertainty ahead of the U.S. presidential election. The flash report also showed prices charged rose at the fastest rate in six months as input cost growth hit a one-year high. Notably, Service sector input cost growth hit a 12-month high largely due to wage growth pressures.

That will likely catch the eye of the dozen Fed heads making the rounds this week, including Fed Chair Powell, who speaks on Thursday. The other item central bankers probably noticed in the Flash PMI report was that employment fell for the second consecutive month in September. While modest, it points to further softening in the labor market an area of increasing focus for the Fed. Other data next week will bring another take on the jobs market in September. As it’s published, we’ll want to parse central banker comments for clues as to how that data may influence the cadence of future rate cuts and mesh with its forecast for an additional 50 basis points in cuts for this year.

What We’re Watching Next for These Five Holdings

In between comments from Federal Reserve Governor Michelle Bowman on Tuesday at 9 a.m. ET and Federal Reserve Governor Adriana Kugler at 4 p.m. ET on Wednesday, we’ll be digging into quarterly results from KB Home KBH out on Tuesday night and Wednesday's New Home Sales report.

While August single-family housing starts moved up nicely month over month to their best levels since April, we’ll be looking to see if the recent decline in mortgage rates has started to stir housing fence-sitters. The consensus forecast for August New Home Sales is 700,000, down from 739,000 in July. With KB, we’ll be looking to see if its guidance for 2H 2024 is as strong as the delivery forecast issued by Lennar LEN last week which calls for a 21% increase in 2H 2024 home deliveries compared to 1H 2024.

These learnings will provide a catalyst for us to revisit our current price targets for Builders FirstSource and United Rentals, and potentially for Vulcan Materials VMC and Waste Management WM.

Based on any adjustments, we’ll also revisit our current one rating for BLDR shares. And if the month’s strength in BROS shares continues, we may need to revisit that rating as well following the more than 17% gain in the portfolio’s position.

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At the time of publication, TheStreet Pro Portfolio was long BLDR, BROS, META, URI, VMC and WM.