The S&P 500 closed at a record Friday after a weak jobs report eased investors' fears of an interest-rate hike in September.
The U.S. economy lost 23,000 jobs in July, an unexpected decline compared with the 83,000 job gains estimated by economists. Steep downward revisions wiped out 103,000 jobs in May and June. The unemployment rate ticked lower to 4.1% as more Americans stepped back from the labor market entirely.
For months, markets have priced in at least one interest-rate increase this year, driven in part by persistent inflation and energy-price volatility. Friday's weak jobs report tempered those expectations. Interest-rate futures now show a 58% chance that the Fed stays on hold at its next meeting and a 42% chance of a rate hike, according to CME Group data.
"This is a soft report that I think takes some of the hike rhetoric off the table," said Michael Hans, chief investment officer at Citizens Wealth. "We don't believe that the market should be pricing in aggressive rate-hiking action."
The S&P 500 gained 0.6%, clinching its 26th all-time high of the year. The Dow Jones Industrial Average added 0.3%, or 152 points. The tech-focused Nasdaq advanced 1.3%.
Treasury yields fell. The yield on the 2-year Treasury note, which is sensitive to expectations for the interest rates set by the Fed, slipped to 4.203%. The 10-year Treasury yield, which influences borrowing costs across the economy, declined to 4.657%.
Stocks have whipsawed for several weeks as investors weigh the sustainability of the AI trade alongside escalating conflict between the U.S. and Iran. But recently, battered tech leaders have started regaining ground. Chip stocks, which bore the brunt of the market tumult, are rallying again, with the PHLX semiconductor index up more than 9% so far this month.
For the week, the S&P 500 was up 3.6%, and the Nasdaq moved 5.2% higher. Both indexes registered their largest weekly gains since April. The Dow increased 3%.
Shares of chip maker Nvidia gained 12% for the week, adding $562 billion in market cap, its largest weekly market-cap gain on record, according to Dow Jones Market Data.
Driving much of the market's recent momentum is another quarter of robust corporate profits. The earnings growth rate for companies in the S&P 500 stands at 50.4% for the second quarter, which would mark the highest growth since the second quarter of 2021, according to FactSet data blending projections and actual results.
"The pullback has made stocks look attractive again, and the earnings season has exceeded our expectations," said Mark Malek, chief investment officer at Siebert Financial.
Still, the picture is far from settled. Some investors are already turning their attention to next week's release of the July consumer-price index, where any surprise uptick in inflation could upend expectations for the interest-rate outlook.
"A hot inflation print would very much increase the probability of a hike in September, but just one print isn't going to bake it in the cake, " said Bradford Smith, portfolio manager at Janus Henderson.
Meanwhile, extreme investor bullishness has reached levels that have historically preceded sharp pullbacks, prompting some analysts to urge caution. Bank of America's bull-and-bear indicator recently climbed to 9.7 from 9.4, its highest level since 2021, according to a research note from the bank's investment strategist Michael Hartnett.
Hartnett advised investors to trim exposure to risk assets and rotate into defensive or interest-rate-sensitive holdings, including consumer staples, real-estate investment trusts, and small-cap and biotech stocks, as well as the U.S. dollar.
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