Stocks headed toward fresh all-time highs, with traders looking past signals of an economic slowdown to focus on prospects for Federal Reserve rate cuts.
The S&P 500 rebounded after struggling to gain traction in the immediate aftermath of data showing U.S. hiring moderated as the jobless rate rose to the highest since late 2021.
Treasury yields dropped across the curve. Swaps fully projected two Fed reductions in 2024, and bets have been building around a September start of the policy easing cycle.
Nonfarm payrolls rose by 206,000 in June and job growth in the prior two months was revised down by 111,000. The median forecast in a Bloomberg survey of economists called for a 190,000 increase.
The unemployment rate rose to 4.1%, and average hourly earnings cooled.
"Get on with it," said Neil Dutta at Renaissance Macro Research. "Today's employment report ought to firm up expectations of a September rate cut. Economic conditions are cooling and that makes the trade-offs different for the Fed."
The S&P 500 rose to 5,560. The Nasdaq 100 climbed 1%. Macy's Inc. surged on a news report about a sweetened buyout offer. Banks got hit — though JPMorgan Chase & Co. and Citigroup Inc. are expected kick off the industry's earnings season next week on a bright note.
Treasury 10-year yields fell eight basis points to 4.28%. Bitcoin sank. The pound led gains in major currencies after Keir Starmer's Labour party swept to a landslide election win, fueling hopes for a period of political calm.
"The job market is bending without yet breaking, which boosts the argument for rate cuts," said David Russell at TradeStation. "Things are not too hot and not too cold. Goldilocks is here and September is in play."
In the run-up to the jobs report, bond funds recorded about $19 billion in weekly inflows, the biggest additions since February 2021, according to a note from Bank of America Corp. citing EPFR Global data.
The trend suggests investors are "locking in peak yields," BofA strategist Michael Hartnett wrote.
The gradual loosening up of a very tight labor market is consistent with the Fed's "immaculate disinflation narrative" and should give officials confidence to lower rates sometime in the second half, according to Michael Feroli at JPMorgan Chase & Co.
