Key facts
- US stocks rose on Friday, with the S&P 500 closing at a record high.
- The US labor market lost 23,000 jobs in July, contrary to expectations of 85,000 additions.
- Job gains for May and June were revised downward.
- Market expectations for further Federal Reserve interest rate hikes diminished.
- The 10-year Treasury yield dropped 5 basis points.
US stocks advanced on Friday, with the S&P 500 closing at a record high, following a significantly weaker-than-expected July jobs report. The labor market shed 23,000 jobs, a stark contrast to the 85,000 additions anticipated, and prior months' gains were also revised downward. This downturn in job creation led investors to pare back expectations for further interest rate hikes by the Federal Reserve.
The market's positive reaction stems from the belief that a cooling labor market will deter the Fed from tightening monetary policy further, a move that has been a source of concern for equities. The probability of a Fed rate hike by year-end fell from 85% to 75% following the report. Bond investors also reacted, with the 10-year Treasury yield sinking 5 basis points.
Richmond Fed President Thomas Barkin described the labor market as neither loose nor tight, aligning with recent trends. However, the weak jobs data also raises concerns about a potential recession. Analysts noted that the Federal Reserve faces a dilemma with elevated inflation persisting alongside a weakening job market. For now, the market appears to be prioritizing the prospect of no further rate hikes, but future economic indicators, such as upcoming inflation and GDP data, will be closely watched.
Around 10 a.m. ET, the S&P 500 was up 0.26%, the Dow Jones Industrial Average gained 0.11%, and the Nasdaq 100 rose 0.54%. A strong earnings season has also tempered concerns about AI-related companies, pushing major indexes to their biggest weekly percentage gains since mid-April.