Markets React to Weak Jobs Data with Rate Cut Bets, Stocks Slip, Bonds Rally

Markets reversed early gains Friday as a significantly weaker-than-expected jobs report reignited concerns about economic slowing. Equities initially climbed on rising hopes for Fed rate cuts but faded late in the session as investors weighed whether deteriorating labor conditions point to deeper trouble. Treasury yields fell sharply, with short-term yields nearing 2022 lows, as rate cut expectations surged. Money markets now price in nearly three rate cuts before year-end. While dovish Fed policy appears increasingly likely, the market is wrestling with whether the economy can handle the slowdown that may be prompting the pivot.

Key Headlines & Market Movers

• Bleak Jobs Report Reframes Fed Outlook: August’s payrolls came in well below expectations at just 22,000 jobs, while June revisions showed job losses for the first time since 2020. The unemployment rate ticked up to 4.3%, and job openings continue to decline. Market participants swiftly moved to price in a September rate cut, with growing confidence in back-to-back cuts through year-end. JPMorgan, Barclays, and Bank of America now all expect at least two cuts, with some calling for three. Despite the rate-friendly implications, investors remain wary of what this data says about underlying economic strength.
• Bonds Surge as Market Prices in Faster Easing: Treasuries rallied across the curve, with the 10-year yield falling to 4.09%, its lowest since April. Two-year yields dropped to 3.52%, near two-year lows, reflecting heightened conviction in imminent Fed cuts. Traders see a September cut as nearly locked in, and October is increasingly priced. Strategists at TD and Evercore expect a faster pace of easing as labor market cracks become harder to ignore. However, caution remains ahead of next week’s inflation data, which could complicate the Fed’s messaging if services inflation proves sticky.
• Equities Reverse as Growth Fears Creep In: Despite an early rally that lifted the S&P 500 to record highs, equities faded into the close. Large-cap tech stocks saw mixed action, with Nvidia, Microsoft, and Amazon sliding, while Tesla gained on news of a potential $1 trillion compensation plan for Elon Musk. Lululemon tumbled 18% after slashing guidance, highlighting continued consumer headwinds. The market's hesitancy reflects a broader investor dilemma: slowing data may support easier policy but also risks eroding corporate earnings and sentiment.
• AI and Semiconductor Names in Focus: Broadcom jumped 10% on strong earnings and signs of a new multibillion-dollar AI-related customer, rumored to be OpenAI. Nvidia, by contrast, fell nearly 3%, pressured by reports that Broadcom is helping OpenAI develop its own AI chip. The semiconductor sector saw wide dispersion, with AMD sliding 6% while Micron rose 5%, underscoring the volatility and stock-specific nature of AI-related trades despite the sector’s long-term bullish narrative.

S&P 500 Sector Performance

Looking Ahead

Next week’s CPI report will be a key test for the Fed’s balancing act between inflation vigilance and growing concern over labor market deterioration. With a September cut now widely expected, sticky services inflation could limit how aggressively the Fed signals further easing. Meanwhile, investors may look to Apple’s product launch event and ongoing fiscal and trade policy headlines for near-term catalysts. Despite volatility, dip-buying sentiment remains strong, but the sustainability of that trend may hinge on signs the economy can decelerate without derailing.

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