(Bloomberg) — Strong evidence that the US labor market is slowing rippled through markets Friday, adding weight to bets on Federal Reserve rate cuts while sinking Treasury yields and lifting stocks.
Two-year yields, which are more sensitive to imminent Fed moves, tumbled 11 basis points to 3.48%. Money markets priced in a 98% probability of a rate cut in September. The S&P 500 extended this week’s advance, notching fresh all-time highs.
Nonfarm payrolls increased 22,000 in August after a combined 21,000 downward revision to the prior months, according to a Bureau of Labor Statistics report out Friday. The jobless rate ticked up to 4.3%, the highest level since late 2021.
Subscribe to the Stock Movers Podcast on Apple, Spotify and other Podcast Platforms.
Wall Street’s Reaction:
Ellen Zentner at Morgan Stanley Wealth Management: This week has been a story of a slowing labor market, and today’s data was the exclamation point. The initial reaction suggests markets are focused on Fed rate cuts rather than concerns about a cooling economy.
Bad news looks like good news, at least this morning.
Bret Kenwell at eToro: Coming into Friday, confidence has grown to near certainty that the Fed will cut rates later this month — and today’s report adds even more weight to that scale. Inflation is moving in the wrong direction, but so is the labor market. In this scenario, the Fed has to address the larger of the two risks, which is the softening jobs market. However, stubbornly high inflation may prevent the Fed from moving as swiftly or aggressively as they would typically like.
Despite this week’s disappointing labor data, today’s report all but locks in a rate cut later this month and will likely increase the odds of more cuts this year. It’s helping push gold higher — which serves as a hedge for inflation and acts as a flight to safety — and may spur a rally in Bitcoin, which also benefits from lower rates.
Investors should tread carefully. There’s a clear difference between a temporary cooling in the jobs market and a deeper, more damaging downturn. Hoping for the former while ignoring the risks of the latter — just to usher in lower rates — is a slippery slope. Stocks have held up well amid high rates and a resilient economy, but that resilience could quickly fade if the labor market shows real cracks.
Eric Teal at Comerica Wealth Management: Further signs that the job market is stalling. Areas of the economy like knowledge-intensive industries (e.g., Software) and demographics such as younger workers and recent graduates are more inclined to feel the impact of AI adoption and it is beginning to show in the data. The weaker readings further shift the focus of Fed policy to an accommodative position which should be positive for the stock market.
Rich Mullen at Pallas Capital Advisors: This is the last jobs report before the Federal Reserve’s September meeting and its weakness increases the chances that the Fed will proceed with its rate cut later this month.
The labor market has been weakening, and while that greenlights a September rate cut, the Fed would be cutting interest rates in an environment with elevated inflation, which is unusual.
Neil Dutta at Renaissance Macro Research: Since a month or two ago, policy hawks, growth bulls (I call them wrong), have been arguing two things. First, sequential growth should perk up because the weakness in the summer was all a function of uncertainty around Liberation Day. Second, focus on the ratios because the unemployment rate is still low. Both of these views were wrong as we now know. Employment growth is still cooling (there is no uptick in hours either) and the unemployment is rising.
To borrow from Powell, now is the time to unleash the great monetary power of the United States.
Jeff Schulze at ClearBridge Investments: The August payrolls release did little to quell fears of a recessionary-esque labor backdrop with job creation remaining at stall speed. Nothing in today’s report changes the outlook for a September rate cut, with concerns over the labor market trumping the desire to wait for more clarity on tariff-induced inflation. This report is supportive of additional and faster rate cuts beyond September.
While bond yields dropped on the release and equities spiked in response, we believe equity investors should be taking a more cautious stance in light of revisions to prior months that now show June experiencing outright job losses and an overall labor market that is approaching the precipice.
Corporate Highlights:
President Donald Trump said he would be imposing tariffs on semiconductor imports “very shortly” but spare goods from companies that have pledged to boost their US investments. Meta Platforms Inc.’s Mark Zuckerberg and Apple Inc.’s Tim Cook joined tech industry leaders in touting their pledges to boost spending in the US on artificial intelligence during a dinner hosted by President Trump that highlighted his deepening relationship with Silicon Valley. Broadcom Inc. is helping OpenAI design and produce an artificial intelligence accelerator from 2026, getting into a lucrative sphere dominated by Nvidia Corp. Tesla Inc. proposed a new compensation agreement for Chief Executive Officer Elon Musk potentially worth around $1 trillion, a massive package without precedent in corporate America. Apple Inc.’s annual sales in India hit a record of nearly $9 billion in the last fiscal year, signaling growing consumer demand for its flagship devices as the company ramps up its retail footprint in the world’s most populous country. Lululemon Athletica Inc. slashed its outlook, disappointing investors for a third straight quarter as it struggles to meet high expectations and balance tariff expenses in a difficult consumer environment. BMW AG unveiled the first of a new range of electric vehicles meant to help the German carmaker push back against Chinese rivals and take back the lead in automotive engineering. BBVA SA is finally submitting its takeover bid for Banco Sabadell SA to the target’s shareholders, ushering in the final leg of a deal that could create a huge new Spanish bank. Orsted A/S shareholders voted to support a crucial 60 billion Danish kroner ($9.4 billion) rights offering, just after the company issued a fresh profit warning on Friday. Nvidia Corp.’s major server production partner Hon Hai Precision Industry Co. reported solid monthly sales growth, signaling demand for AI infrastructure remains intact in the US. Some of the main moves in markets:
Stocks
The S&P 500 rose 0.4% as of 9:30 a.m. New York time The Nasdaq 100 rose 0.9% The Dow Jones Industrial Average rose 0.2% The Stoxx Europe 600 rose 0.3% The MSCI World Index rose 0.4% Currencies
The Bloomberg Dollar Spot Index fell 0.5% The euro rose 0.6% to $1.1723 The British pound rose 0.7% to $1.3524 The Japanese yen rose 0.8% to 147.28 per dollar Cryptocurrencies
Bitcoin rose 2.4% to $113,011.04 Ether rose 3.8% to $4,470.07 Bonds
The yield on 10-year Treasuries declined eight basis points to 4.08% Germany’s 10-year yield declined five basis points to 2.66% Britain’s 10-year yield declined six basis points to 4.66% The yield on 2-year Treasuries declined 11 basis points to 3.48% The yield on 30-year Treasuries declined six basis points to 4.79% Commodities
West Texas Intermediate crude fell 1.8% to $62.31 a barrel Spot gold rose 1% to $3,580.22 an ounce ©2025 Bloomberg L.P.