Stocks closed out the week on a down note after the August jobs report increased rate-hike expectations and boosted Treasury yields. This makes the August Consumer Price Index (CPI) the most important event we’re watching next week, with the inflation data landing just ahead of the September Fed meeting.
Ahead of the open, the Bureau of Labor Statistics said the U.S. added 162,000 jobs in August, easily exceeding economists’ estimates of 58,000. The unemployment rate, which is derived from a separate survey, remained at 4.1%, as expected.
Additionally, job growth for June (+11,000 to +31,000) and July (+44,000 to +21,000) was upwardly revised, resulting in a combined 55,000 more jobs than previously reported.
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The good-news-is-bad-news jobs report sent expectations for a September rate hike higher. According to CME Group FedWatch, futures traders are now pricing in a 58% chance the central bank will increase the federal funds rate by a quarter-percentage point when its next meeting concludes on September 16, up from 49% one day ago.
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Treasury yields resumed their march higher, too. The 2-year Treasury yield rose 4.3 basis points to 4.377% — a new 52-week peak — and the 10-year Treasury yield climbed 2.2 basis points to 4.784%.
As for equities, the blue-chip Dow Jones Industrial Average fell 0.5% to 53,414, the broader S&P 500 shed 0.4% to 7,718, and the tech-heavy Nasdaq Composite gave back 0.3% to 26,506.
As a reminder, Monday is a stock market holiday, with both equity and bond trading closed for Labor Day.
The big data point comes next week
“The August payroll release quelled any lingering labor fears, putting next week’s inflation data firmly in the driver’s seat for the Federal Open Market Committee’s rate decision later this month,” says Jeff Schulze, head investment strategist at Franklin Templeton Institute.
First up on next week’s economic calendar is Thursday morning’s release of the Producer Price Index (PPI). This will be followed by the August CPI, which is due out Friday morning.
Deutsche Bank economists expect PPI to be 0.2% higher from July to August and up 3.3% year over year. Headline CPI, meanwhile, should get a boost from rising energy prices, the economists say, which has them calling for 0.4% and 3.4% monthly and yearly increases, respectively.
Lululemon has its worst day in a year after earnings
In single-stock news, Lululemon Athletica (LULU) plunged 17.4% — its worst day in a year — after the athletic apparel retailer reported earnings.
For its fiscal second quarter, LULU said earnings fell 33.5% year over year to $2.06 per share, while revenue slumped 4% to $2.4 billion. Comparable sales were down 9%.
Lululemon also said it expects its top and bottom lines to contract in its fiscal third quarter, and it lowered its full-year outlook.
“We know there is much more work to be done,” acknowledged interim co-CEO and Chief Financial Officer Meghan Frank on the earnings call. “We’re excited our incoming CEO, Heidi O’Neill, joins us next week. And we expect she will take a deep dive into the business, evaluating our strategy and current action plans.”
In the near term, Frank added, the company remains ” focused on execution.”
Today’s post-earnings plunge is just more of the same for the consumer discretionary stock, which is now down nearly 50% for the year to date. But UBS Global Research analyst Jay Sole warns against buying the dip on struggling LULU.
“We don’t believe a pullback represents a good buying opportunity,” Sole says. “The main reason is we see big earnings-per-share downside over the near term and also see little upside risk.”
Guidewire sinks 20% on weak guidance
Elsewhere on the earnings calendar, Guidewire Software (GWRE) sank 20%, one of its biggest one-day losses on record, after the cloud-based insurance platform unveiled its fiscal fourth-quarter results.
While the company reported higher-than-expected top- and bottom-line results, its fiscal 2027 first-quarter revenue fell short of Wall Street’s estimates.
Analysts don’t seem too worried. “Guidewire reported a strong close to its fiscal year with all key metrics ahead of expectations, a record 26 cloud deals in the fourth quarter, and accelerating customer adoption of the company’s early agentic offerings,” says William Blair analyst Dylan Becker, who has an Outperform (Buy) rating on the tech stock.
Becker adds that GWRE “remains uniquely positioned as the trusted system of record for the P&C economy, supported by increasing momentum across carrier tiers, product offerings, and cloud migration activity,” all of which will drive long-term growth for the company.
