S&P 500 hits record high as soft jobs report eases rate hike concerns
US stocks advanced to record highs as an unexpected decline in July nonfarm payrolls lowered expectations for Federal Reserve interest rate hikes.
US stocks advanced, pushing the S&P 500 to a record closing high and capping a strong week of gains across major indexes, according to reporting by Straitstimes. The market surge on Friday followed government data showing that the US economy unexpectedly shed jobs in July, which dampened investor expectations that the Federal Reserve would raise interest rates at its upcoming meeting.
According to the Labour Department, nonfarm payrolls decreased by 23,000 jobs in July. This contrasted sharply with the consensus of economists polled by Reuters, who had predicted an increase of 80,000 jobs. Furthermore, previously reported job gains for the prior two months were revised sharply lower, with figures for June and May facing a combined downward revision of 103,000 jobs. Despite the payroll contraction, the unemployment rate ticked down to 4.1 per cent in July from 4.2 per cent in June as workers left the labour force, as reported by Straitstimes.
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The weaker-than-expected employment figures immediately shifted sentiment in the bond and equities markets. The yield on the 10-year Treasury fell, while the two-year Treasury yield dropped, reflecting recalibrated expectations for monetary policy. According to Theglobeandmail, market expectations for a rate cut or hold in September shifted following the release, while CME FedWatch data cited by Straitstimes put the probability of a Fed rate hike at the next meeting at roughly 44 per cent, down from 55 per cent in the prior session and 67 per cent a week earlier. Economictimes noted that futures markets flipped the odds of a rate hike at the upcoming Federal Open Market Committee meeting to a worse-than-even chance.
Under new Federal Reserve Chairman Kevin Warsh, the central bank has offered investors limited forward guidance, heightening market sensitivity to economic indicators and remarks from policymakers, as detailed by Straitstimes and Economictimes.
Market analysts offered varied interpretations of the data's implications. Tom Siomades, chief market economist at AE Wealth Management in Topeka, Kansas, pointed out the paradox in market behavior:
"You probably have to lower rates to kind of stimulate job growth, but if you lower rates, you’re going to also stimulate inflation. So you’re kind of in a pickle at this point, and yet the market’s just taken off because earnings have been stellar. The market should be reacting to weak job numbers and higher inflation and the possibility of a slow-growth economy that may need to have rates raised rather than cut, and yet it’s not. We’re setting records, so go figure."
Tom Siomades, chief market economist at AE Wealth Management, via Straitstimes
Other experts urged caution regarding the broader economic foundation. Peter Graf, chief investment officer at Amova Asset Management Americas, noted via Theglobeandmail that investors should remain wary of future growth potential in an environment where fewer people are working. Similarly, Derek Holt of Scotiabank observed via Afr that the US job market is clearly grinding to a halt after a brief spurt.
Corporate earnings provided substantial support for the major indexes. According to LSEG data cited by Straitstimes, of the 436 companies in the S&P 500 that reported results through Friday morning, 85.1 per cent topped analyst expectations, well above the historical average. Standout corporate movers included Atlassian, which posted its largest-ever daily percentage gain after forecasting strong quarterly revenue, and Microchip Technology, which rallied following upbeat guidance. Airbnb also gained significantly after beating second-quarter revenue estimates, while technology heavyweights such as Nvidia and Broadcom lifted the broader market, as reported by Theglobeandmail.
Market Snapshot
- S&P 500: Gained 47.68 points, or 0.62 per cent, to close at 7,757.64.
- Dow Jones Industrial Average: Rose 151.83 points, or 0.28 per cent, to finish at 54,036.93.
- Nasdaq Composite: Climbed 342.26 points, or 1.3 per cent, to end at 26,690.62.
- Weekly Performance: S&P 500 added 3.58 per cent, Nasdaq rose 5.19 per cent, and the Dow climbed 2.96 per cent.
Looking ahead, market participants are turning their attention to upcoming inflation releases. Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, noted via Theglobeandmail that the upcoming consumer price index report will serve as a crucial deciding factor for monetary policy. Wall Street expects the CPI data to show an annual inflation rate of 3.4 per cent for July, easing slightly from the 3.5 per cent rise recorded in June.
