It was the kind of jobs data that put a damper on any talk of an imminent Fed hike, and US stocks responded by moving higher. Traders have been repricing where policy is headed, which you can see in the early gains and the way short-term yields have given up some ground. It’s a quick change in risk appetite, with investors now open to a wider range of names than just the AI crowd.
Cooling jobs shift the Fed calculus
The 57,000 jobs put on in June were no match for the 110,000 most economists were calling for. Unemployment was 4.2%, not the 4.3% on the table. All in all, the figures point to a labour market that is still holding up but has cooled off, which takes some of the edge off the worry of another round of tightening from the Fed.
The markets moved on it right away. LSEG puts the odds of a hike at some point this year at 76%, down from 84% or so prior to the print. And if you look at interest-rate swaps, there’s less than a 20% shot of an increase at the Fed’s meeting later in the month, compared to 33% before we had the data.
“A beautiful number,” says Florian Ielpo of Lombard Odier, in that it keeps inflation from picking up steam. eToro’s Bret Kenwell put it this way: “It doesn’t scream labor-market trouble, but it does cool the narrative a bit.” A more patient Fed seems to be in order.
Gains broaden beyond the AI trade
By 9:48 a.m. ET, the Dow was 447.72 points in the hole to the upside, or 0.86%, at 52,752.96. The S&P 500 put in 49.84 to close at 7,533.51, and the Nasdaq Composite was up 146.99 to 26,187.02.
You could tell the move was on early. In New York at 9:42 a.m., the S&P 500 was already 0.6% in the black and the Nasdaq 100 0.4%. Yields on shorter-dated Treasuries were lower as well; traders are no longer as keen on near-term tightening.
There was some good breadth to the rally. On the NYSE, advancers outpaced decliners 3.85 to 1, and 2.48 to 1 on the Nasdaq. Still, neither the S&P 500 nor the Nasdaq hit a new 52-week high or low, so the risk-on mood is anything but overwrought.
Leaders rotate while semis pause
With 10 of the 11 S&P 500 sectors in the plus column, the day was led by materials and consumer staples. The Philadelphia SE Semiconductor index didn’t move, a sign of how cautious the market is with AI-adjacent momentum stocks while investors re-evaluate what’s fair and hunt for value in some of last year’s laggards.
“Right now we’re seeing a lot of value in places other than AI. We like the market at large,” said Ielpo. If concerns over rates continue to wane, that kind of thinking could be a tailwind for more cyclical or defensive plays.
Inside the jobs mix
You could see it in the numbers from the BLS: the steepest drop in leisure and hospitality headcount since 2020, with seasonal hiring not as strong as you’d expect. Some were counting on a World Cup bump, but the data told a different story.
“Anecdotes from hoteliers have been borne out; the World Cup was a bit of a fool’s paradise,” put it Brad Conger of Hirtle & Co. “Hospitality employment turned sharply negative.” Jennifer Timmerman of Wells Fargo’s investment arm called it a “mixed” card that has deflated some of the talk of a year-end rate hike.
What to make of it:
– 57,000 nonfarm payrolls added (110k was the call)
– Unemployment at 4.2%, under the 4.3% mark
– The odds of a hike have come down to 76% from 84%
– Less than 1 in 5 chance of one this month
– Gains in materials and staples
– A standstill in the chip index
Fed and geopolitics
Chair Kevin Warsh made it plain: inflation is less of a worry, but the 2% goal is still the line in the sand. Then there’s the matter of oil and the Middle East. A run-up in prices from the U.S.-Iran war had spooked the market before, and with no end in sight after some unproductive back-channel talks, the Strait of Hormuz remains an open question.
Bradford Smith of Janus Henderson figures the softer job market and taming of oil price inflation means the Fed will sit tight for the next meeting, at any rate.
Where the money is going
There’s been some rotation and a good deal of stock picking. Adobe and Palantir both got a leg up after HSBC and DA Davidson, respectively, moved them to a buy.
Volatility is also in the air for new issues. Bending Spoons, the Vimeo parent, gave back 3.9% on the day after its 40% Nasdaq pop. It shows how picky investors are being: they want to see the earnings and are done with the speculation.
Looking ahead
The takeaway is straightforward: growth has cooled to put some of the edge off tightening, but there’s no panic here. As long as the numbers hold up, you’ll see leadership drift from the AI crowd and into more rate-friendly corners.
Of course, if the labour market heats up or we get another jolt from oil, the Fed conversation will be back on. But for the time being, the lack of hiring has given equities room to breathe.
