Wall Street opened the week riding a wave of records after a surprisingly weak July jobs report scrambled traders' expectations for the Federal Reserve's September meeting, flipping bets that had been tilted toward an interest-rate increase into wagers on a hold, or eventually a cut. The S&P 500 closed at an all-time high of 7,757.64 on Friday, its second record close of the week, capping the index's best five-day run since April.
The Bureau of Labor Statistics reported that U.S. employers cut 23,000 jobs in July, a stark reversal from the roughly 34,000-a-month average pace of hiring over the prior year and far below the roughly 80,000 gain economists polled by Reuters had forecast. The unemployment rate ticked down to 4.1% from 4.2%, though the BLS attributed the improvement chiefly to workers leaving the labor force rather than new hiring; labor-force participation slipped to 61.4%, about 0.7 percentage point lower than a year earlier.
The report also carried a heavy set of revisions. May's initially reported gain of 129,000 jobs was cut to 63,000, and June's 57,000 was cut to 20,000, wiping a combined 103,000 jobs from the two months. Government payrolls, concentrated in local education, fell by roughly 50,000, retail shed 19,000 positions and financial activities lost 14,000, while health care remained a bright spot, adding 22,000 jobs. Wage growth was equally soft: average hourly earnings rose just 2 cents to $37.62, leaving the year-over-year gain at 3.2%, the slowest pace since May 2021.
Markets reprice the Fed
Investors read the miss as a sign the Federal Reserve has less room to raise rates than it appeared to have just days earlier. Heading into Friday, futures markets had been leaning toward a rate increase at the Fed's September 16 meeting; by the close, the probability that the central bank instead holds rates steady had jumped to 56%, up from 45% the previous session, according to CME's FedWatch tool. The S&P 500 rose 0.62% on the day and 3.58% for the week; the Nasdaq Composite gained 1.30% Friday and 5.19% over five sessions; the Dow Jones Industrial Average, which had touched an intraday record above 54,700 earlier in the week, added 0.28% Friday and 2.96% for the week.
The rally arrives at an awkward moment for the central bank. Chair Kevin Warsh has spent recent months emphasizing his determination to push inflation, running at 3.5% annually, back toward the Fed's 2% target, a stance that had left the door open to further tightening even as the labor market showed signs of strain. Economists said employers have grown reluctant to hire amid geopolitical tensions, including the disruption to Middle East shipping, tariff uncertainty and tighter immigration policy, all of which have clouded hiring plans across sectors.
A split verdict from economists
Reaction among labor-market watchers was pointed. Cory Stahle, an economist at Indeed Hiring Lab, said the report reshaped the near-term calculus for policymakers, telling CBS News:
The chances of holding just went up pretty significantly today. The Fed might have to think about the timing of a potential rate hike, if not think about some rate cuts on the table as well, if we continue to see this type of deterioration in the labor market.
Cory Stahle, economist, Indeed Hiring Lab
Heather Long, chief economist at Navy Federal Credit Union, struck a more cautious note, saying the Federal Reserve "has to stay focused on inflation, but the labor market is vulnerable to any downturn." Not everyone was convinced the rally reflected sound footing: some strategists noted the disconnect between resilient corporate earnings, which have broadly beaten expectations this quarter, and a labor market that is visibly cooling. One chief market economist, Tom Siomades, put it bluntly, saying the market "should be reacting to weak job numbers ... yet it's not," pointing to earnings strength as the more immediate driver of Friday's gains even as the jobs data supplied the rate-cut narrative.
Attention now turns to this week's inflation data, with the consumer price index due Wednesday and producer prices Thursday, both of which will shape how much further traders can push their bets on a Fed hold, or a cut, before the September 16 meeting. A soft CPI reading would likely reinforce Friday's market moves; a hot one could reopen the debate the July jobs report appeared to have settled.
