U.S. stocks rose to a record high following a "shocking" jobs report

Major U.S. stock market indices rose during trading on August 7, despite the release of weak labor market data, which Business Insider called “shocking .” The number of jobs in the country fell by 23,000 in July, a sharp deviation from Wall Street expectations. Analysts had predicted an increase of 85,000.

The S&P 500 rose 0.6% and is on track for a record close. The Nasdaq Composite jumped 1.1%. The Dow Jones Industrial Average rose 0.2%. All three indices are likely to post their biggest weekly gains since spring, according to The Wall Street Journal.

This is one of the weakest months for the U.S. labor market in recent memory, notes Business Insider. But it seems that the “bad news is good news” principle is at play on the stock markets today, explains the WSJ. Investors have concluded that the employment data is weak enough to keep the Federal Reserve from raising interest rates, but not so bad as to signal a serious economic slowdown, the publication writes.

It was precisely the risk of further monetary tightening this year that investors viewed as one of the main factors putting pressure on stocks. Following the report’s release, market participants immediately revised their rate expectations: the probability of a rate hike as early as the regulator’s next meeting in September fell from 55% to 42%, according to the CME FedWatch tool. At the same time, traders continue to fully price in one 0.25 percentage point rate hike by December.

The latest statistics were released at a challenging time for the U.S. economy. Investors are still assessing the impact of the war with Iran and the tariffs imposed by President Donald Trump on inflation, according to Business Insider.

"Today's report gave the markets a brief respite, but only temporarily. Since Fed officials are giving virtually no signals about their next moves, the inflation data due out next week becomes even more important and could quickly reignite fears on Wall Street about another rate hike,” said Sima Xi, chief global strategist at Principal Asset Management.

“If we look at the July report alongside the revised June data released on August 7—which showed 20,000 fewer jobs—it becomes clear that a ‘downward trend’ is taking shape in the labor market,” said Ian Lingen, head of U.S. interest rate strategy at BMO Capital Markets, in an interview with CNBC. He believes it will be difficult for the market to completely ignore this shift in momentum.

— “To put it mildly, this is a very poor report,” CNBC quotes Adam Krisafulli, founder and president of Vital Knowledge, as saying. — “The upside for the stock market, at least in the short term, is that the report clearly points toward monetary policy easing. (...) However, the Fed will face a serious dilemma if the labor market continues to weaken and inflation remains high.”

— “This is an indicator that suggests more than just a lack of a labor market boom: perhaps the market is actually starting to show signs of strain,” warned Saira Malik, chief investment officer at Nuveen. — “But for investors, the two main sources of concern have been bond yields and inflation. Weaker [employment] data won’t support the need for the Fed to raise interest rates.”

— “The number of new jobs was indeed disappointing,” admits Sonu Vargese, chief macro strategist at the Carson Group. However, he notes that the main weakness was in local government—primarily due to seasonal factors related to the school calendar—as well as in the leisure and hospitality sector, where the boost from the World Cup has faded. Vargese is confident that the labor market as a whole remains resilient.

— “Despite a single weak jobs report, the economy remains strong and corporate profits are very high, as confirmed by companies’ results for this quarter,” agrees Bradford Smith, portfolio manager at Janus Henderson Investors. — “Volatility in labor market data has become the norm, so the Fed is placing less and less emphasis on any single indicator.”

— “This report is like a hall of mirrors: it confuses investors with conflicting signals,” The Wall Street Journal quotes Kevin Gordon, head of macroeconomic research and strategy at the Schwab Center for Financial Research, as saying. — “I wouldn’t draw too far-reaching macroeconomic conclusions from it.”

This article was AI-translated and verified by a human editor