What August Labor Data Means for the S&P 500 in September

The August labor data generally supports a bullish outlook for the S&P 500 (NYSEARCA: SPY) in September. Although risks and uncertainty remain, the deterioration in labor markets isn’t as severe as many headlines suggest.

The critical data points are the JOLTs and NFP job creation figures, which align with normalization following the COVID-19 pandemic rather than with a general market meltdown. 

The JOLTs figure, specifically, 7.2 million, is down an alarming 41% from the peak set in early 2022. Yet, it is still above the level set in August 2019 and well-above the 2019 year-ending level when the labor market was considered strong, healthy, and strengthening and the S&P 500 on track to set record highs.

Likewise, the Challenger Report on layoffs revealed a spike to an 18-month high, but the August 2025 figure is well within the three-year range and one of more than a dozen such spikes since mid-2022.

Labor Market Is in Wait-and-See Mode; FOMC Can Catalyze It

The hiring figures are the most alarming but don’t indicate doom. The Challenger Hires figures for 2025 are running near long-term lows, but not the lowest on record, and the NFP figure was positive. The NFP job creation figure was weak for August. Still, it was positive and compounded by ample job availability, suggesting a market that is holding its breath, waiting for a catalyst to move it. 

The FOMC will be that catalyst. The labor data presents a Goldilocks opportunity for them, with labor markets “slowing” from previously high levels and wage inflation decelerating.

This has significantly increased the odds for a rate reduction; the CME FedWatch Tool reveals a 100% chance for a 25 basis point cut in September and the same for two by year’s end. This will boost market sentiment, freeing up large amounts of capital within the system that can create tailwinds and positive economic feedback loops. If any of Trump’s tariffs are permanently overturned, the tailwind will be even stronger.

The Outlook for Retail Spending Is Too Low

The latest forecasts for consumer spending this holiday season suggest it will decline by a sharp 5%. However, the labor data and most recently available retail sales figures are contrary to it, and the outlook for rate cuts suggests it is pessimistic.

As it stands, consumer retail spending increased by a half-percent in July compared to June and nearly 4% compared to the previous year, outpacing the consensus estimate and inflation. This data suggests consumers remain resilient in the face of tariff headwinds, and the August retail industry data will be the same. It is due mid-September, just before the FOMC makes its policy decision. 

The outlook for the S&P 500 earnings is also likely to be low. The index tends to outperform its consensus estimates by several hundred basis points each quarter, and recent performance has been better. The likely outcome is that Q3 and subsequently Q4 S&P 500 earnings will be better than forecasted, underpinned by strengths in the Consumer Discretionary (NYSEARCA: XLY) and Consumer Staples (NYSEARCA: XLP) sectors.

The Risk for the Fed Outlook Is Inflation

Risks for the FOMC include the August Consumer Price Index, which is expected to show a headline acceleration compared to the prior month and the core holding steady at 3.1%. That is well above their target but may be sufficiently low for them to allow a token 25 basis point cut. The risk is that CPI will be much hotter than expected, raising the risk of a recession.  

Regarding the S&P 500 chart. The broad market index is in rebound mode as of early September and looks poised to move higher. The latest indications in the MACD and stochastic are those of strength, indicating that this market could rally through the year’s end, if not longer. The target is in a range above 7,200.

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The article "What August Labor Data Means for the S&P 500 in September" first appeared on MarketBeat.