Weekly Market Update: U.S. Credit Downgrade Rattles Stocks, Job Growth Slows, and Manufacturing Faces Contraction

  • U.S. government credit rating downgraded to AA+ from AAA.
  • Job growth slows, and the unemployment rate slips to 3.5% from 3.6%.
  • The decline in manufacturing decelerates, while services continue to expand, albeit at a slower rate.

In the first week of August, major U.S. stock indices experienced a decline following a strong July. The drop was attributed to increasing Treasury yields and an unexpected U.S. government credit rating downgrade. The Nasdaq Composite, which is tech-focused, faced the most significant losses. The week was marked by corporate earnings releases, focusing on Amazon and Apple. Amazon’s earnings surpassed expectations, leading to a more than 9% stock rally. Apple, however, saw about a 3% decline, as its mixed report revealed strong services performance but disappointing iPhone sales. The TSX followed declining in the week despite a rebound in oil, gaining 2.5%. Europe fell on the U.S. credit downgrade and disappointing earnings reports.

On Tuesday, the U.S. Bureau of Labor Statistics revealed that June job openings slipped slightly to 9.58 million from 9.62 million. Hires declined to 5.9 million (-326,000), especially in durable goods manufacturing and finance/insurance. Total separations, including quits, layoffs and other reasons, dropped by 288,000 to 5.6 million. Quits, indicative of employee willingness to leave, decreased to 3.8 million. Layoffs and discharges remained stable at 1.5 million, with notable increases in professional and business services. Other separations held at 339,000. Changes, such as growing job openings in health care/social assistance but declining in transportation/warehousing, were observed across industries.1

The July Manufacturing Report from the Institute for Supply Management revealed a reading of 46.4%, slightly higher than June’s 46%. This marks the eighth consecutive month of economic contraction following a 30-month period of expansion. The New Orders Index saw improvement, rising to 47.3% from June’s 45.6%, and the Production Index also increased to 48.3% from 46.7%. The Prices Index showed an uptick to 42.6% from 41.8%, while the Backlog of Orders Index climbed to 42.8%. However, the Employment Index experienced a decline, dropping to 44.4%. The Supplier Deliveries Index increased to 46.1%, and the Inventories Index rose to the same level. Meanwhile, the New Export Orders Index decreased to 46.2%, and the Imports Index remained in contraction territory at 49.6%.2

On Wednesday, the ADP employment report showed an increase of 324,000 jobs in July. Job creation remained strong in the leisure and hospitality sectors (+201,000). Manufacturing (-36,000) and interest-sensitive (-5,000) sectors continue to shed jobs for the fifth consecutive month. Interestingly, the Northeast added 276,000 jobs, the Midwest 129,000, the West 55,000 and the South lost 144,000. Small businesses added 237,000, medium size 138,000 and large businesses experienced job shrinkage with an elimination of 67,000 jobs.3 

On Thursday, initial unemployment claims for the week ending July 29 came in at 227,000 – an increase of 6,000 over the previous week. Benefits paid for all programs for the week ending July 15 decreased by 52,732 to 1,860,627.4 In Q2 2023, nonfarm business sector labor productivity rose by 3.7% – driven by a 2.4% increase in output and a 1.3% decrease in hours worked. This is a seasonally-adjusted annual rate. The decline in hours worked was the first since Q2 2020, attributed to a 1.3% drop in average weekly hours, while employment remained unchanged. Compared to the same quarter in the previous year, labor productivity grew by 1.3%, with a 2.6% output increase and a 1.2% rise in hours worked. This marks the initial rise in the four-quarter productivity measure since Q4 2021.5 The Institute for Supply Management reported that the July Services report registered 52.7% – a decline from June’s 53.9%. The composite index revealed growth for the seventh consecutive month after a contraction in December at 49.2%, which marked the first downturn since June 2020 at 45.4%. The Business Activity Index stood at 57.1% – down by 2.1 percentage points from June’s 59.2%. The New Orders Index extended its growth for the seventh month, with a reading of 55% – slightly lower by 0.5 percentage points compared to June’s 55.5%.6

On Friday, the Bureau of Labor Statistics released the nonfarm payroll employment data for July, showing an increase of 187,000. The unemployment rate slipped to 3.5% from 3.6%. The latest employment growth data is the first time since 2020 that the Bureau has reported jobs for two consecutive months below 200,000. Wages increased by 0.4% in July, with the year-over-year increase holding at 4.4%. In previous testimony, the Fed officials want to see wage growth return to the pre-pandemic level of 3% or less.7 









Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

To contact Sightline and request a full Smart Money Market Report, fill out the contact form below

CALL US AT 866.889.1909

Please note we only serve clients who reside in Canada.
I would like to receive ongoing news and information from Sightline Wealth Management

Recent Articles