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Financial markets aren’t the economy

A ‘help wanted’ sign is displayed in a window of a store in Manhattan on December 2, 2022 in New York City.

Spencer Platt | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Moderating jobs growth
U.S. nonfarm payrolls grew by 187,000 in July. That’s less than the Dow Jones estimate of 200,000 but is slightly more than June’s downwardly revised jobs growth of 185,000. Unemployment dipped ten basis points to 3.5%, the lowest level since late 1969. All in all, it was a pretty good report for both workers and the Federal Reserve.

Bad week for U.S. stocks
Major U.S. indexes ended Friday in the red, giving the S&P 500 and Nasdaq Composite their worst week since March. The picture was different across the Atlantic. The pan-European Stoxx 600 inched up 0.3%, with most bourses and sectors in positive territory. Stock movements of note: Rolls-Royce popped 5.7%, Credit Agricole jumped 6.31% but Maersk lost 4.88%.

What recession?
JPMorgan Chase no longer thinks the U.S. economy will slip into a recession this year. Michael Feroli, the bank’s chief economist, told clients JPMorgan expects the economy to grow about 2.5% in the third quarter, compared with the bank’s previous forecast of 0.5%. “Given this growth, we doubt the economy will … slip into a mild contraction as early as next quarter,” wrote Feroli.

Apple’s big one-day drop
Amazon shares surged 8.27% after the company reported blowout earnings — and its biggest profit beat since 2020 — for its second quarter. On the flipside, Apple shares slumped 4.8% on news that the Cupertino-based company might see another decline in revenue for the September quarter, its fourth in a row. Friday saw the biggest drop in Apple’s shares since Sept. 29 last year.

(PRO) Eyes on inflation
Inflation data dominates the economic agenda this week. The July consumer price index comes out Thursday and the producer price index the next day. CNBC Pro’s Sarah Min explains how the Federal Reserve might react, depending on what the price numbers look like.

The bottom line

The U.S. economy’s had an unbroken string of victories.

Job growth in July was lower than expected, which is what the Federal Reserve wants to see to get inflation down. But it wasn’t so low that it’d spell trouble for workers or the economy.

“Overall, this is still not the picture of the labor market we would expect to see if the economy were in danger of decelerating dramatically in the short term, although without question there are signs of moderation,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.

Indeed, the U.S. economy looks so healthy — a slowing but strong labor market, lower inflation readings and stronger-than-expected growth — that Wall Street’s changing its mind about recession. JPMorgan’s the latest bank to abandon its recession forecast. The country’s biggest bank follows Bank of America, which called for a “soft landing, no recession,” and Goldman Sachs, which lowered its probability of a recession from 25% to 20%.

Yet markets slumped Friday. The S&P 500 fell 0.53% and the Nasdaq Composite slipped 0.35%. That’s the fourth straight loss for both indexes. The Dow Jones Industrial Average dipped 0.36%. Moreover, all indexes ended the week in the red. The S&P and Nasdaq slid around 2.3% and 2.9% respectively, their worst week since March. The Dow retreated 1.1%.

The disparity between the good economic news and the bad week in markets reminds us that, as much as there’s a close relation between the two, they aren’t the same.

Economic data measures and reports what has already happened. Whereas markets are alive, fueled by feelings and comprise bets on the future. What does this tell us? That traders aren’t sure if the S&P can continue rallying — even if inflation data coming out this week is softer than expected. As Steve Sosnick, chief strategist at Interactive Brokers, put it, “The risk mentality is changing a bit.”

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