The S&P 500 closed at a record high on August 7 after the stock market rallied on July’s disappointing jobs report, which showed the U.S. economy unexpectedly shed 23,000 positions and eased investor fears of a Federal Reserve rate hike in September.
The Labor Department’s report fell sharply short of economist expectations, which had forecast a gain of around 80,000 to 86,000 jobs. Instead, nonfarm payrolls declined for the first time in several months, according to Reuters and CNBC. The unemployment rate ticked down to 4.1% from 4.2%, though the decline was partly driven by people leaving the workforce rather than strong job creation.
The weakness was concentrated in government hiring, where payrolls fell by 53,000, while private-sector employment proved more resilient, according to the Detroit Free Press. Healthcare added 22,000 jobs, and average hourly earnings grew 4.3% year-over-year, slightly below the expected 4.4%, according to Fox Business.
Market expectations for a September rate hike from the Federal Reserve tumbled following the data. CME FedWatch pricing showed odds of a rate increase falling to roughly 40-44% from 55% before the jobs report, according to Virginia Business and ColoradoBiz. The shift reflected traders’ belief that the weak labor market would give the Fed reason to hold rates steady rather than tighten policy, as Reuters reported.
The jobs miss also revived hopes for eventual rate cuts. Weak labor market data historically supports the case for the Fed to lower rates later in the cycle, though some economists cautioned that one weak month does not eliminate the case for tightening if inflation remains sticky, according to The New York Times and Reuters.
The stock market’s reaction reflected the so-called “bad news is good news” dynamic that has dominated recent trading: weaker economic data reduces the likelihood of aggressive Fed action, which supports equity valuations. Technology and rate-sensitive stocks typically benefit most from lower rate expectations, contributing to the broad market advance.
Sources
- Reuters — July jobs report miss, Fed rate expectations, market reaction
- CNBC — July jobs decline, employment data details
- NBC News — Jobs shed, unemployment rate
- Fox Business — Healthcare jobs, wage growth data
- Detroit Free Press — Government job losses, private-sector resilience
- Virginia Business — Fed rate hike odds, CME FedWatch data
- ColoradoBiz — Federal Reserve rate hike expectations
- The New York Times — Rate expectations, inflation context
