Stocks closed sharply lower on Friday and for the week.

Friday's Employment Situation report came in with a weaker-than-expected 142,000 jobs being created in August (118,000 in the private sector and 24,000 in the public) vs. the consensus for 160K (136K private and 24K public). The unemployment rate slipped to 4.2% as expected vs. last month's 4.3%. Average hourly earnings rose 0.4% m/m vs. last month's 0.2% and views for 0.3%, while the y/y change was up 3.8% vs. last month's 3.6% and estimates for 3.7%.

While inflation fears have receded, the higher-than-expected increase in wages was a bit surprising. But the biggest disappointment was with the jobs numbers. While they were up from last month's tally, the revisions to last month's numbers made them look even worse with nonfarm payrolls being lowered by 25K to 89,000 (from 114,000), with private sector jobs losing the brunt of them dropping to just 74,000 (from 97,000). June's revisions were also to the downside, shedding 61K to 118,000 (from 179,000).

And given the trend of downward revisions to labor stats, August's numbers are likely to be revised down as well.

Nonetheless, the biggest job gains last month came from Construction with 34,000 new jobs; Health Care with 31,000; and Social Assistance jobs increased by 13,000. The biggest job losses were seen in Manufacturing which gave up 24,000 jobs.

The question as to whether bad news would be considered good or bad by the market was answered on Friday – bad news is bad.

It was already a near certainty that the Fed would lower rates on 9/18. That's definitely still the case. The real debate seems to be around how much. The likelihood still favors 25 basis points vs. 50 by a probability of 70% to 30%. The bigger debate may be over what happens next. Do they lower again in November and December? If the jobs market continues to deteriorate, do they not wait until November and do an inter-meeting cut in October?

And what is the terminal rate target the Fed is looking for? U.S. economist at BofA Global, Aditya Bhave, believes 4% is the neutral rate and that the Fed will cut by 25 basis points at each of the next 5 meetings to get to this level by March 2025. (That means a 25 bps cut in Sep., Nov., Dec., Jan., and Mar.)

Interestingly, Fed Governor Christopher Waller on Friday said that he is "open-minded about the size and pace of cuts," and that "if the data suggests the need for larger cuts, then I will support that." So that could mean a shorter timeline to 4% (or lower).

But first things first. And that's the FOMC Announcement on 9/18.

But before that we'll get another look at inflation with the Consumer Price Index (CPI ? retail inflation) on Wednesday, and the Producer Price Index (PPI ? wholesale inflation) on Thursday. It's hard to imagine either of these reports having an impact on what happens at the September meeting. But the Fed has maintained it will be data dependent. So it will help inform what happens afterwards. But again, the labor market has seemingly supplanted inflation as the biggest concern for the Fed. But it's still important to see continued progress.

In the meantime, we'll get Wholesale Inventories and Consumer Credit today.

And we'll see if the market can halt its decline and consolidate or bounce higher.

See you tomorrow,