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Today's Bonus Article What August Labor Data Means for the S&P 500 in SeptemberWritten by Thomas Hughes. Published 9/8/2025. 
Key Points - Labor markets are cooling, but any data should be taken with caution; cooling and weak aren't the same thing.
- 2025's labor market is cooler than the post-pandemic peak but still strong relative to historical trends.
- The FOMC can provide a catalyst to boost business, labor market, and consumer sentiment, but there is risk.
The August labor data generally supports a bullish outlook for the S&P 500 (NYSEARCA: SPY) in September. While risks and uncertainty remain, the deterioration in labor markets isn't as severe as many headlines suggest. The key figures—the JOLTs openings and the Nonfarm Payrolls (NFP) job creation data—reflect a return to normalcy following the COVID-19 pandemic rather than signaling a market collapse. Markets are buzzing this week. Analysts are pointing to small-cap stocks as the potential winners following the latest Fed signals on interest rates. While large-caps dominate headlines, it's often the overlooked small caps that deliver the biggest surprises.
History shows the right small-cap can be a game-changer. Just think of the stories where a few hundred dollars in early picks turned into life-changing wins. 📥 Download Your Free guide Now and start spotting opportunities before they soar! Specifically, the JOLTs level of 7.2 million is down an alarming 41% from its early-2022 peak, yet it remains above the August 2019 reading and well above the 2019 year-end level, when the labor market was strong and the S&P 500 was on its way to record highs. Similarly, the Challenger layoffs report showed a rise to an 18-month high, but August 2025's number still sits within the three-year range and marks just one of more than a dozen such spikes since mid-2022. Labor Market in Wait-and-See Mode; FOMC Could Be the Catalyst Of all the hiring indicators, the Challenger hires data for 2025 remains near long-term lows—though not at record lows—and the NFP report, while weak for August, was still positive. Coupled with ample job openings, this suggests the market is holding its breath for a catalyst. The Federal Open Market Committee (FOMC) could provide that spark. Labor markets are "slowing" from previously elevated levels, and wage inflation is decelerating, creating a Goldilocks scenario for policymakers. According to the CME FedWatch Tool, the market assigns a 100% probability to a 25 basis-point rate cut in September and to two such cuts by year-end. Rate reductions would bolster sentiment and free up capital, generating tailwinds and positive feedback loops. If any of Donald Trump's tariffs are permanently rolled back, these tailwinds could strengthen further. Retail Spending Outlook Appears Too Pessimistic Current forecasts predict a 5% decline in consumer spending this holiday season. Yet the latest labor data and retail sales figures paint a more resilient picture, and the prospect of rate cuts makes those projections seem overly bearish. In July, consumer retail spending rose 0.5% month-over-month and nearly 4% year-over-year—outpacing consensus estimates and inflation. This suggests that consumers remain resilient despite tariff headwinds. The August retail industry report (retail & wholesale sector) is due mid-September, just before the FOMC meeting. Likewise, consensus expectations for S&P 500 earnings are likely too low. The index generally outperforms its estimates by several hundred basis points each quarter, and recent beats have been stronger, driven by gains in Consumer Discretionary (NYSEARCA: XLY) and Consumer Staples (NYSEARCA: XLP). Q3 (and likely Q4) earnings could exceed forecasts. Main Fed Risk: Inflation One key risk for the FOMC is the August Consumer Price Index. Headline CPI may accelerate month-over-month, with core CPI holding around 3.1%—above the Fed's 2% target, but perhaps still low enough for a token 25 basis-point cut. However, hotter-than-expected inflation could force the Fed to pause, increasing recession risk. On the charts, the broad market index is in rebound mode as of early September and appears poised to move higher. Both the MACD and stochastic indicators show strength, suggesting this rally could continue through year-end (and beyond). The potential upside target sits above 7,200. 
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