U.S. stock futures advanced on Friday, with technology shares leading the charge, following a surprisingly weak jobs report that has significantly reduced the likelihood of another Federal Reserve interest rate hike in September. The Nasdaq 100 futures climbed 1.16% to lead the gains, while S&P 500 futures rose 0.53% and Dow Jones Industrial Average futures added 0.31%.
The Labor Department reported that nonfarm payrolls fell by 23,000 in July, a stark contrast to the 80,000 gain economists had anticipated. This unexpected contraction, coupled with downward revisions to May and June figures, suggests a cooling labor market. The total reduction in the two-month payroll count was 206,000, a figure derived from the July shortfall and revisions, though it is an estimate rather than an official statistic.
Following the data release, traders swiftly adjusted their expectations. The probability of a September rate hike dropped to roughly 20%, down from 55% prior to the report. Treasury yields declined, with the two-year note falling nine basis points to 4.15% and the 10-year yield down six basis points to 4.61%. This bond rally provided a boost to growth-oriented technology stocks, which are particularly sensitive to interest rate movements.
Anthony Saglimbene, chief market strategist at Ameriprise Financial, commented, "Today's numbers may reframe that conversation and put the labor side of the mandate in focus." The unemployment rate ticked down to 4.1% from 4.2% in June, but the labor-force participation rate remained stagnant at 61.4%, still 0.7 percentage points below January's level. Temporary layoffs rose by 153,000 to 921,000, while local government education lost 50,000 jobs, retail shed 19,000, and financial activities declined by 14,000. Healthcare added 22,000 positions, though this was below its typical recent monthly growth.
Market Performance and Earnings
As of Thursday's close, the S&P 500 was down 0.18% for the day but up 2.9% for the week, while the Nasdaq Composite slipped 0.06% daily but gained 3.8% week-to-date. The Dow Jones Industrial Average fell 0.85% on Thursday but was still up 2.7% for the week. The Russell 2000 was down 0.58% on Thursday but up 2.4% for the week. Both the S&P 500 and Dow were on track for their best weekly performance since April.
Corporate earnings have been robust, with S&P 500 second-quarter earnings growth at 31.1% as of Wednesday, and technology sector profits up approximately 72%. The index is currently valued at 20.4 times projected earnings, down from 22.2 at the end of the year. In premarket trading, Atlassian Corporation (NASDAQ:TEAM) surged 32.5% after reporting adjusted EPS of $1.87, beating the $1.50 forecast, and revenue of $1.77 billion, exceeding the $1.66 billion estimate. Cloudflare Inc. (NYSE:NET) advanced 15.5% on revenue of $696.1 million, topping expectations, and raised its annual outlook. Airbnb Inc. (NASDAQ:ABNB) rose 7.0% after revenue of $3.61 billion beat estimates and the company lifted its annual guidance.
However, The Trade Desk Inc. (NASDAQ:TTD) plummeted 29.2% after revenue of $715 million missed the $752.6 million forecast, and the company issued weaker-than-expected third-quarter guidance. This divergence highlights the market's selective response to earnings, with investors rewarding strong results but punishing any operational missteps.
Analyst Actions and Outlook
Several analyst rating changes were noted on Friday. TD Cowen reaffirmed a Hold rating on Atlassian (NASDAQ:TEAM) with a price target raised to $145 from $105. Citizens upgraded Airbnb (NASDAQ:ABNB) to Market Outperform with a target of $190, up from $170. BMO Capital Markets downgraded The Trade Desk (NASDAQ:TTD) to Market Perform from Outperform, slashing the target to $15 from $38, while Truist Securities lowered its rating to Hold from Buy with a target of $16, down from $35.
Looking ahead, investors will closely monitor July consumer price data due Wednesday, August 12, followed by producer price figures on August 13. These reports will provide further insight into inflation trends and the Fed's policy path. While the soft jobs report has eased rate hike fears, a continued weakening labor market could eventually lead to lowered revenue and earnings forecasts, posing a risk to the current rally. Additionally, geopolitical tensions near the Strait of Hormuz could push oil prices higher, potentially reigniting inflation concerns.
