Markets Rally to Record as Jobs Slowdown Fuels Rate Cut Hopes

Markets surged Thursday, with the S&P 500 hitting a fresh all-time high ahead of Friday’s pivotal jobs report. A series of soft labor market signals reinforced expectations that the Fed could begin cutting rates as soon as this month. Treasury yields dropped, the Magnificent 7 outperformed, and even small-caps joined the rally. While cooling job data raised concerns about economic momentum, for now, investors are treating it as a “Goldilocks” scenario — soft enough to trigger policy easing, but not yet alarming.

Key Headlines & Market Movers

• Labor Market Weakness Builds Case for Fed Cuts: ADP data showed private-sector job gains far below expectations, while jobless claims hit their highest level since June. Hiring plans for August were also at their weakest on record, and the unemployment rate is expected to tick up to 4.3%, a nearly four-year high. These signals strengthen the case for a September rate cut, with markets now pricing in almost full odds of a move at the next Fed meeting. However, economists warn that overly weak data could shift the narrative from “soft landing” to stagnation.
• Fed Officials Hint at Easing Amid Shifting Risks: Fed commentary continues to lean dovish. Governor Waller said labor demand may be on the cusp of a sharp decline, while Chair Powell acknowledged a “shifting balance of risks” that may warrant easing. New York Fed President Williams added that cuts would be appropriate “over time,” signaling flexibility without a firm timeline. Markets are now anticipating at least two cuts by year-end, contingent on Friday’s payroll report.
• Services Sector Rebounds, Offsetting Broader Weakness: Despite softness in employment, ISM Services PMI data surprised to the upside, showing the strongest activity in six months. Orders accelerated at the fastest pace in nearly a year, with 12 of 16 industries expanding. This suggests the broader economy may still have pockets of resilience, especially in consumer-facing and information-driven sectors, a potential offset to labor market weakness in manufacturing and logistics.
• Corporate Highlights: Diverging Fortunes: Lululemon slashed its outlook, while Salesforce warned of sluggish AI adoption, weighing on sentiment. Conversely, American Eagle soared on strong sales despite recent ad controversy. Tesla opened its robotaxi app to the public, hinting at a broader rollout, while GM scaled back Bolt EV production due to lackluster demand. Microsoft may avoid a major EU fine, and OpenAI announced plans for an AI-focused jobs platform.

S&P 500 Sector Performance

Looking Ahead

All eyes are on Friday’s nonfarm payrolls. A print below 100,000, paired with a rising unemployment rate, would likely seal the deal for a September rate cut, but a sharp downside surprise could stoke concerns about broader economic fragility. Either way, the Fed appears increasingly poised to act. For now, markets are embracing the narrative of a softening economy as a means to unlock policy support, though the line between “just right” and “too soft” is narrowing fast.

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