Market prepares to face an "abnormal" non-farm payroll week: Federal Reserve personnel earthquake, will the August employment report set the tone for a rate cut in September?

In the coming week, American investors will face four trading days and a key non-farm employment report - the first employment report since the July employment data was significantly revised and high-level personnel changes at the US Bureau of Labor Statistics shocked the market. For investors, the importance of the August non-farm employment report lies in its critical impact on the Federal Reserve's policy decisions. However, as of the end of this week, there is still great uncertainty regarding the final composition of the Fed's Board of Governors. Last week, Trump attempted to remove Fed Board of Governors member Powell from the board. Powell objected to this decision, and a hearing held on Friday put the dismissal in a legal deadlock. In addition, the Senate is scheduled to hold hearings this week on Trump's nominees to fill a temporary vacancy on the board. In addition to the monthly non-farm employment report, labor market data remains the focus this week: the job vacancies report and ADP private sector employment data will be released on Wednesday and Thursday, respectively. Key indicators for the manufacturing and service sectors will also be released, marking the end of a busy week of economic data. In terms of earnings reports, with the market entering a lull between the second and third quarter earnings seasons, Dow components Salesforce, Inc. (CRM.US), Broadcom Inc. (AVGO.US), Lululemon (LULU.US), DocuSign (DOCU.US), and Macy's, Inc. (M.US) will announce earnings; worth noting, Figma (FIG.US) will also release its first earnings report since going public. Last week, the US stock market saw little change in closing prices: on Thursday, optimism about the US economy pushed stock indices to record highs; however, on Friday (the last trading day of the week), slightly disappointing inflation data led to a market pullback. Despite this, major stock indices have still seen a fourth consecutive month of gains. The S&P 500 index closed above 6500 points for the first time on Thursday, marking the start of the final month of the third quarter of 2025. Examining the "abnormal" labor market In July, signs of a slowdown in the US labor market emerged - signaling a tumultuous start to a typically stable economic policy area. In July, the US economy added 73,000 jobs, and after revisions to May and June employment data, the previously reported addition of over 250,000 jobs was revised down to zero. Following the release of this report, Trump dismissed Erica McEntarfer as Commissioner of the US Bureau of Labor Statistics. It is expected that in August, the US economy will add 73,000 jobs, and the unemployment rate may rise to 4.3%. On August 22, Federal Reserve Chair Powell hinted at the Jackson Hole Economic Symposium that the Fed may begin cutting interest rates at its September policy meeting and mentioned that the US labor market is experiencing an "abnormal equilibrium." Powell stated, "While the labor market appears balanced, this balance is quite unusual - it is the result of a significant slowdown in both labor supply and demand." He further added, "This unusual situation implies that downward risks to the labor market are increasing. Once these risks materialize, they may quickly manifest in the form of significant job cuts and rising unemployment rates." Concerns about the health of the US labor market seem to be leaning Powell towards supporting a Fed rate cut. Previously, two members of the Federal Open Market Committee (FOMC) supported this move, and this camp is expected to expand this week. The Senate Banking Committee is scheduled to hold a hearing on Thursday for Stephen Milan's nomination. Milan is Trump's nominee to replace Kudlow who resigned from the Federal Reserve Board on August 8. If Milan is approved by the Senate as expected, there will be another voice supporting more aggressive rate cuts at the next Fed policy meeting on September 16. However, whether Fed Board member Kudlow will be able to attend this meeting is still uncertain. Last week, Kudlow sued the President for his dismissal on charges of mortgage fraud. At the court hearing on Friday, a ruling has not yet been made. Despite the legal turmoil surrounding Kudlow, Trump, and the Fed, it is not expected to affect interest rate trends this year in the short term - the market generally believes that a rate cut is still a high probability event. However, as Mohamed El-Erian pointed out earlier this week in a column, the cracks in the foundation of Fed independence are beginning to show. "The Seven Giants" continue to dominate the market With the second quarter earnings season coming to a close (about 98% of companies in the S&P 500 index have reported earnings), a prominent feature of the current market becomes increasingly clear: "The Seven Giants" still firmly control market leadership. These seven companies are Apple Inc. (AAPL.US), Amazon.com, Inc. (AMZN.US), Alphabet Inc. Class C (GOOGL.US), Meta (META.US), Microsoft Corporation (MSFT.US), NVIDIA Corporation (NVDA.US), and Tesla, Inc. (TSLA.US). Data released by FactSet analyst John Butters last Friday showed that the earnings growth rate of the "Seven Giants" in the second quarter reached 26.6%, far exceeding the 8.1% earnings growth rate of the other 493 companies in the S&P 500 index. Meta, Microsoft Corporation, Amazon.com, Inc., and NVIDIA Corporation contributed to the earnings in this quarter, occupying four of the top six contributors to earnings growth in the S&P 500 index. The only companies breaking the tech giants' dominance were Vertex Pharmaceuticals Incorporated (VRTX.US) and Warner Bros. Discovery (WBD.US): Vertex Pharmaceuticals Incorporated went from a loss of $3.6 billion in the same period last year to a profit of $1.03 billion this quarter; while Warner Bros. Discovery went from a nearly $10 billion loss in the same period last year, to a profit of $1.6 billion. Butters pointed out in the report that analysts expect the earnings growth rates of the "Seven Giants" to slow down in the coming quarters, while the earnings growth of the remaining components of the S&P 500 index is expected to accelerate again at the beginning of 2026. These two pieces of data indirectly explain why the US stock market has rebounded so steadily since hitting the bottom in mid-April. On April 9, Trump ruled out the worst-case scenario of additional tariffs, which became a direct positive factor supporting the rise in the stock market. However, in addition, both the most widely watched companies in the S&P 500 index and the lesser-known component stocks have seen improvements in their fundamentals. Long term, earnings growth is the core factor determining stock price movements; however, in the short term, the "rate of change" of earnings growth is crucial to stock prices. At the beginning of the second quarter earnings season, investors were worried that the earnings growth rate would slow significantly compared to the first quarter. But as the earnings season drew to a close, the market found that the actual slowdown was much less than expected. From June 30 to last Friday's close, the S&P 500 index has risen by 5%.