NEW YORK — The clearest reading of Wall Street's mood this week came from what it did with a report that the U.S. economy lost jobs. It bought.
Friday's July employment report was weak by nearly every measure. Fox Business reported that payrolls contracted by 23,000 against expectations of an 80,000 gain from economists polled by LSEG, and that revisions cut a combined 103,000 jobs from May and June. Equities rose anyway, and the S&P 500 finished at a record. Fox Business
The logic is not complicated. For most of the summer, the risk hanging over stocks was not a slowdown. It was a rate hike.
The repricing
Before Friday, the market was leaning toward tighter policy. Fox Business reported that the CME FedWatch tool put the probability of the Fed holding its benchmark rate steady in September at 55.9 percent, up from 45 percent a day earlier, while the odds of a quarter-point hike fell to 44.1 percent from 55 percent. The current target range is 3.5 percent to 3.75 percent. CBS News reported the same reversal, noting that interest rate futures on Thursday were decidedly tilted toward a September hike before the jobs report flipped the picture. Fox Business
Fox Business also reported the year-end distribution, which is where the real uncertainty sits: one quarter-point hike remained the single likeliest outcome at 44.9 percent, against a 26.8 percent chance of two hikes and a 23.6 percent chance rates finish the year unchanged. In other words, the market did not conclude the tightening story is over. It concluded it has been postponed. Fox Business
Analysts framed Friday as a reprieve rather than a resolution. Jeffrey Roach, chief economist at LPL Financial, told Fox Business that the labor market is undergoing an orderly slowdown with stress indicators still historically low, and that the report was likely to boost investor risk appetite while complicating the Fed's decision because the economy appears to be at full employment. Lindsay Rosner of Goldman Sachs told Fox Business that slowing job growth supports a September hold, though incoming inflation data will be the ultimate arbiter. Fox Business
The week in indexes
The rally did not begin Friday. CNN reported that the S&P 500 closed at a record on Tuesday, surging 1.79 percent to 7,737 and surpassing its previous peak from early June, while the Dow soared more than 900 points, or 1.71 percent, to close above 54,000 for the first time. The Nasdaq Composite jumped 2.59 percent that session. By the weekend, CNN was reporting that the S&P 500 is back at a record high and the Dow has crossed 54,000. CNN
CNN identified the rotation underneath the headline numbers. In June and July, healthcare and financials outperformed technology, which kept the Dow near records while the Nasdaq struggled through a summer slump. That reversed in August, with the tech sector up almost 7 percent and the Nasdaq up almost 5 percent early in the month. CNN
Friday's session followed that pattern. Fox Business reported that markets opened higher, with the S&P 500 up about 0.4 percent, the Nasdaq up 0.96 percent and the Dow up 0.13 percent in morning trading, a spread that put the rate-sensitive growth names in front. Fox Business
What the bulls are standing on
Beneath the Fed trade, the fundamentals are mixed but not alarming. CNN reported this weekend that the economy grew at a 1.5 percent rate last quarter, inflation is running at 3.5 percent rather than the 9 percent-plus of 2022, retail sales have risen for eight straight months, and job gains have averaged solid enough numbers this year with February and July as the exceptions. CNN
The labor market's shape also supports the case. CBS News reported that employers announced 33,429 job cuts in July, down 46 percent from a year ago and the lowest monthly total since July 2024, according to Challenger, Gray & Christmas, and that the four-week average of initial jobless claims has fallen below 200,000 for the first time since October 2022, per PNC Economics Research. Companies are not hiring, but they are not firing either. CBS News
Earnings have supplied a separate tailwind, some of it from an unusual source. CNN reported that Apple booked an estimated $2.2 billion tariff refund last quarter, Amazon $600 million and Nike $300 million, as the government processes claims following the Supreme Court's decision striking down Trump's most sweeping levies. The government is on the hook for roughly $166 billion in refunds to importers, with a little more than half already paid out according to a Customs and Border Protection court filing. CNN
That is a real line item in this earnings season. CNN also noted the asymmetry: the levies cost households an estimated $1,000 on average last year, according to the Tax Foundation, and consumers are getting almost nothing back. CNN
Wednesday is the test
Every strategist quoted this week pointed to the same date. CBS News reported that the July Consumer Price Index is due August 12 and is forecast to show inflation easing slightly to an annual 3.4 percent, according to FactSet, after June came in at 3.5 percent, down from 4.2 percent in May. CBS News
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, told Fox Business that the weak payrolls print may ease pressure on the Fed in September, but next week's inflation data will still likely be the deciding factor, and that a hotter-than-expected reading could mean a cooler labor market is not enough to quiet calls for hikes. Fox Business
Not everyone thinks the market has this right. CBS News reported that Bank of America economists are sticking with a call for three quarters of a point in hikes this year beginning in September, on the view that the Fed will stay more focused on inflation than on labor. CBS News
Which leaves the rally resting on a single assumption: that a softening job market buys enough time for prices to come down on their own. Fed Chair Kevin Warsh has said he intends to get inflation back to 2 percent. Wednesday morning will indicate how far he still has to go.
Reporting from Fox Business, CNN, and CBS News.