U.S. equities closed higher on Friday, with the S&P 500 reaching a fresh all-time high after the latest employment report came in well below expectations, reducing the likelihood of a Federal Reserve rate hike in September. The Dow Jones Industrial Average also advanced, while the Nasdaq Composite led the gains, supported by a rebound in technology and growth stocks.
Market Performance and Key Indices
The S&P 500 finished the session at 7,757.54, up 0.62% on the day and 3.58% for the week. The Nasdaq Composite surged 1.30% to 26,690.62, marking a 5.19% weekly gain, its strongest weekly performance since mid-April. The Dow rose 0.28% to 54,036.52, adding 2.96% over the week. All three major indices posted their largest weekly percentage increases since April.
Labor Market Data and Rate Expectations
The July nonfarm payrolls report revealed a decline of 23,000 jobs, a significant miss versus the consensus estimate of +80,000. Additionally, revisions to May and June data subtracted another 103,000 jobs, bringing the three-month average to just +20,000, down 57,000 from the prior three-month period. The unemployment rate fell to 4.1% from 4.2%, but this was accompanied by a 264,000 drop in the labor force and a dip in participation to 61.4%.
Investors interpreted the soft labor data as a signal for potential rate cuts rather than a harbinger of economic downturn. The probability of a September rate hike declined to 44%, down 13 percentage points from before the report. This shift fueled buying in longer-duration assets, with the Nasdaq's 5.19% weekly gain outpacing the Dow's 2.96% rise by 2.23 percentage points.
Earnings Season Provides Support
Corporate earnings continue to underpin market sentiment. Of the 436 S&P 500 companies that have reported, 85.1% exceeded analyst expectations, a rate 17.1 percentage points above the historical average since 1994. Tom Siomades, chief market economist at AE Wealth Management, remarked, "Earnings have been stellar."
Notable gainers included Airbnb (NASDAQ:ABNB) and Atlassian (NASDAQ:TEAM), both receiving upgrades and price-target increases. Airbnb was upgraded by Wedbush from Neutral to Outperform, with a target raised from $152 to $200. Atlassian was upgraded by BofA Securities from Neutral to Buy, with a target increase from $105 to $175. On the downside, The Trade Desk (NASDAQ:TTD) fell to the bottom of the S&P 500 after disappointing guidance, leading to downgrades from Raymond James and Truist Securities, with Truist slashing its target from $35 to $16.
Upcoming Inflation Data
Attention now turns to Wednesday's July Consumer Price Index (CPI) report, scheduled for 8:30 a.m. EDT. Economists forecast headline inflation at 3.4% year-over-year and core inflation at 2.5%. A reading below these estimates would reinforce Friday's rally, while a higher print could reignite rate hike expectations. Additional economic data due next week includes July Producer Price Index (PPI) on Thursday and July retail sales on Friday.
Other key events include earnings from CoreWeave (NASDAQ:CRWV) on Tuesday, Cisco Systems (NASDAQ:CSCO) on Wednesday, and Applied Materials (NASDAQ:AMAT) on Thursday. Investors will also monitor AI infrastructure demand and semiconductor equipment trends for further market direction.
Risks and Outlook
While the market closed at record highs, the rally lacked broad-based economic optimism. Fluctuations in oil prices could rekindle inflation concerns, and further deterioration in the labor market might shift the narrative from rate cuts as stimulus to rate cuts as a response to weakening growth. Nevertheless, robust earnings and softer labor data have provided a favorable backdrop for equities in the near term.
