Markets Rebound as Weak Labor Data Reinforces Fed Cut Expectations

Stocks and bonds moved higher Wednesday as soft labor market data raised confidence that the Federal Reserve will cut interest rates in September. A drop in job openings, the weakest in 10 months, spurred buying in Treasuries and lifted equities after a shaky start to the month. Investors are increasingly confident the Fed will ease policy despite lingering inflation risks, though upcoming jobs data Friday will remain a key test. Gold hit new highs and oil pulled back, reflecting a cautious but risk-on tone across asset classes.

Key Headlines & Market Movers

• Labor Market Softens, Fuels Rate-Cut Bets: Job openings fell to a 10-month low, reinforcing a trend of cooling labor demand. Coupled with sluggish hiring and slower job-finding rates, markets are now nearly fully pricing in a 25-bps rate cut in September, with expectations for more before the end of the year. Strategists emphasized that while the data reflects softness, it’s not signaling a recession. The Fed is now seen prioritizing employment softness over inflation, though officials remain divided.

Fed Officials Signal Support for Cuts: Fed Governor Waller reiterated support for beginning rate cuts this month, noting the slowdown in jobs and hiring as justification. Still, others remain cautious, pointing to persistent inflation pressures from tariffs and corporate pricing. Chair Powell’s recent comments and the Beige Book both suggest a more dovish bias is emerging, particularly as financial conditions remain loose and growth risks rise.

• Tech Rebounds; AI and Antitrust in Focus: Megacaps led Wednesday’s rebound, with Alphabet rising after dodging a forced Chrome breakup, and Apple gaining on reports of an AI search tool in development. Despite volatility, investors continue to favor AI-exposed firms, though analysts warn lofty valuations leave little room for disappointment in spending trends. Chipmakers underperformed earlier in the week, but some regained ground late Wednesday.
• Corporate and Macro Highlights: Gold surged to fresh records as investors sought safety, while oil slipped on OPEC+ rumors. Meanwhile, a number of high-profile corporate stories made waves: Macy’s raised guidance, Kraft Heinz announced a split, and PepsiCo got a lift from activist interest. On the policy front, a court ruling against Trump’s tariffs has introduced new uncertainty into trade negotiations, with ripple effects across sectors.

S&P 500 Sector Performance

Looking Ahead

All eyes are now on Friday’s nonfarm payrolls. A downside surprise could cement the case for a rate cut, but markets will be sensitive to any signals of reacceleration or labor market resilience. Economists expect a modest 75,000 jobs added and an uptick in unemployment to 4.3%. With the Fed seemingly ready to act, weaker data will likely be taken as confirmation, though sustained labor deterioration could bring back recession concerns. For now, risk assets are finding support in the belief that rate cuts are imminent, even as inflation tail risks remain on the radar.

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