Analysis: CHPT YOU VMC

*Stocks are moving higher as Friday morning's data walks back Fed rate-hike expectations yet again.

*The August Employment report and August Manufacturing PMI reports point to a slowing economy, improving wage pressures and further deceleration in job creation -- checking several Fed boxes.

*This week's numbers argue in favor of the Fed being "done" but the August Service PMI, CPI, and PPI data are still ahead.

The stock market is starting September with a positive step following a trifecta of economic reports that support the likelihood the Fed will not need to hike interest rates one more time in the coming months.

The August Employment Report showed a slower pace of job creation than previously thought and greater progress on wage pressures. And both Manufacturing PMI reports from S&P Global and the Institute for Supply Management (ISM) showed that part of the economy slowed further in August with continued declines in new order data pointing to more of the same for September. That weakness suggests we should also see employment growth slow further and wage pressure continue to improve as well.

All the above check several Fed boxes -- and that in turn has shifted the probabilities for additional Fed policy action lower. The CME FedWatch Tool now shows a 93% probability the Fed will leave interest rates unchanged following its upcoming September policy meeting, up from 88% yesterday, and 80% a week ago.

More important is the shift in expectations for the Fed's November meeting, which a few days ago showed nearly a 50% chance of a rate hike. Following the data received earlier this week and today, that probability has now fallen to 36.5% with the overwhelming odds (61.1%) calling for no action after that meeting. That is what is lifting stocks today, especially small-cap names as evidenced by the larger gain in the Russell 2000 vs. the other major market indexes. It's also benefiting shares of Action Alerts PLUS holdings ChargePoint (CHPT) and to a lesser extent Clear Secure (YOU) .

While the case builds in favor of the Fed standing pat, next week brings more data on the Services sector while the following one contains the August CPI and PPI reports. While we are encouraged by today's data when it comes to Fed policy, if we see the Service sector roll over into contraction territory that would reignite recession concerns even as it adds another layer of confirmation for the Fed not boosting rates further.

August Jobs Report Supports a Glide Path for the Economy

By the numbers, August nonfarm payrolls increased 187,000, stronger than the 170,000 consensus and better than the downwardly revised figures of 157,000 jobs created in July and 105,000 in June. Those revisions for July and June compared to the original figures of 187,000 and 185,000, respectively.

While the trend points to more jobs being created over that trailing three-month period, the number of actual jobs was much smaller than previously thought. We see that in the reduced the three-month average for total nonfarm payrolls to 150,000 from 181,000. There was also a decline in temporary positions as well as a pickup in the U6 employment rate, which factors into underemployed workers.

All of this points to a softening in the employment market, supporting arguments Fed policy efforts are paying off and the need for more steps is increasingly unlikely.

August average hourly earnings were up 0.2% versus 0.4% in July, and rose 4.3% on a year-over-year basis versus July's 4.4% print. While the sequential drop in the annual comparisons is relatively small, it's in the right direction and the market is more inclined to focus on the annualized sequential increase of 0.2%. That figure points to a much slower pace of wage gains at 2.4% vs. the implied 4.8% for July -- and the Fed is likely to see that as a positive sign. Should we see further indications companies are slowing their hiring, not rushing to fill open slots as they had in prior months, it would argue in support of wage pressures improving.

August U.S. Manufacturing PMIs

S&P Global's final August Manufacturing PMI for the U.S. came in at 47.9, down from 49.0, indicating the pace of activity slowed month over month with continued declines in new order activity. With the rate of new order declines accelerating vs. July, that suggests the likelihood of a rebound in the final month of the current quarter is rather low. The report also found production activity fell for the second time in three months, and lead times have declined again, marking the eighth consecutive month.

While weakening demand helped improve cost pressures, S&P called out oil, chemicals, plastics, and fuel as being up in price and those higher costs were passed on to customers. That in turn led output prices to rise at the fastest pace in four months albeit at a far more modest rate than over the last several quarters. Given the accelerated decline in new orders, that decrease in demand is likely to weigh further on input and output prices as well as employment and wage pressure in the coming months. That will also be welcomed by the Fed and reduces the odds of another rate hike.

Turning to the August Manufacturing report issued by ISM, the headline reading came in at 47.6, up from 46.4 in July and the highest level since February. However, much like S&P's findings, ISM's data showed another leg down for new orders activity during August, marking the twelfth consecutive month of contracting order activity.

ISM's findings also showed a slower rate of decline for prices but called out higher prices for non-metallic mineral products, petroleum, and plastics. Those last two categories speak to the rise in oil prices we discussed Thursday, while the comment on non-metallic mineral products tells us mid-year concrete and aggregate price increases are sticking. That is a positive for our shares of Vulcan Materials (VMC) .

The report also confirmed a slowdown in hiring, reflected by "attrition, freezes and layoffs." In reviewing the report's findings about declining orders, our comment above about the impact on wage pressure and job creation stands.