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Wall Street Journal
5 minutes ago
- Wall Street Journal
Global Markets Mixed; Treasury Yields Fall as Expectations for Interest-Rate Cut Mount
Stock markets broadly fell back Thursday after recent gains. U.S. stock futures were flat to marginally down, Asian markets closed lower but European bourses eked out small gains. Treasury yields fell to their lowest level in a week as investors increasingly bet that the Federal Reserve will cut interest rates in September which is also putting pressure on the dollar.
Yahoo
11 minutes ago
- Yahoo
'A gamechanger': Economists react to weak July jobs report as rate cut bets surge
Wall Street strategists are sharply recalibrating their economic outlooks after Friday's July jobs report showed weaker-than-expected hiring and staggering downward revisions to prior months' data, suggesting the labor market may be losing steam at a quicker pace than previously thought. The US economy added just 73,000 jobs in July, far below the 104,000 expected by economists. But the bigger surprise came from revisions to the May and June figures, which collectively erased 258,000 jobs. This marked the largest two-month downward revision since May 2020. Sarah House, senior economist at Wells Fargo, called the July jobs report "a dud" in a client note titled "July and the No Good, Very Bad Jobs Report." "The 'solid' state of the labor market described by the FOMC earlier this week looks more questionable after the July employment report," she said, citing broad-based hiring weakness in cyclically sensitive sectors like manufacturing, retail, and professional services. Despite persistent strength in healthcare hiring, she added, "the pace [of job growth] has lurched lower to just 35K" over the past three months when factoring in revisions. Steve Sosnick, chief strategist at Interactive Brokers, bluntly told Yahoo Finance that the July numbers were simply "not good. There's no way to sugarcoat that. The two-month revision is just staggering. It basically wipes out two months of what we thought were healthy job gains." Citi economist Veronica Clark agreed, telling Yahoo Finance, "It's not so much this July number, but the massive downward revisions to the June number that we had last month. ... This definitely does look like a labor market that is weakening." Meanwhile, Heather Long, chief economist at Navy Federal Credit Union, called the report a "gamechanger" in a post on X, echoing others in saying "the labor market now looks a lot weaker than expected." The unemployment rate ticked up to 4.2% in July, in line with expectations and still near historic lows. But as Clark pointed out, "that happened despite the labor force participation rate falling more," a shift some economists have linked to President Trump's immigration crackdown. Ahead of the report, there were growing concerns that increased deportations were reducing labor supply and keeping the jobless rate artificially low. September rate cut odds surge The revised data has added urgency to calls for rate cuts from the Federal Reserve, with market pricing shifting notably in the aftermath. "We still anticipate that the Fed starts to cut in September with consecutive cuts thereafter leading to about 100 basis points of cuts in total," said Leslie Falcone, head of taxable fixed income strategy at UBS Global Wealth Management. Falcone noted that while the Fed had already turned more cautious, the scale of the revisions surprised even the most dovish forecasters. "Some of these revisions are much more than what people expected. ... I do think that this is a bit on the weaker side. And it does put cuts back on the table." Traders seem to agree. Following the report, the probability of a September rate cut surged to about 80%, up from just 38% the day prior, according to the CME FedWatch Tool. Earlier this week, Fed governors Michelle Bowman and Christopher Waller broke from the majority of FOMC officials, dissenting against the decision to hold interest rates steady after warning that the labor market was weaker than initial data had indicated. That warning appeared prescient on Friday as markets tumbled following the report. The tech-heavy Nasdaq (^IXIC) fell over 2% by midmorning, the Dow (DOW) shed nearly 600 points, and the S&P 500 (^GSPC) dropped around 1.6%. Meanwhile, bond prices surged on increased rate cut bets, sending the yield on the 10-year Treasury (^TNX) down 11 basis points to around 4.2%. Adding to labor market concerns, escalating trade tensions were also top of mind for investors as Trump hiked tariff rates on several US trading partners, including a surprise 39% tariff on Switzerland. "The market had sort of put tariffs in the rearview mirror and assumed that the labor market was okay," Sosnick said. "Well, both of those assumptions have been overturned quite dramatically this morning." The strategist warned markets appear to be entering a "reckoning period," explaining, "We're not seeing a lot of reflexive dip buying. ... That, to me, tells me that the psychology, at least as of this particular moment, is a bit more tenuous than it was." Correction: A previous version of this article misspelled Steve Sosnick's name. We regret the error. Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
18 minutes ago
- Yahoo
As the S&P 500 ends above 6,400 for the first time, here are a few reasons for caution
The stock market surged to a fresh record high on Tuesday after consumer prices edged up slightly in July, with the S&P 500 index SPX ending above 6,400 for the first time in history. Gradual price increases in July gave investors more confidence around the Federal Reserve's ability to cut interest rates in September, which could help insulate the economy from President Donald Trump's tariff fight. 'I am a senior citizen': My car needs $3,500 for repairs, but only has a trade-in value of $6,000. Do I bother fixing it? 'Absolutely no one pays attention': I could steal from my children's trust fund without them having a clue Yet a growing concern has been that tariff shocks still lurk on the horizon. Should that happen, higher prices could clamp down further on consumer spending — the economy's biggest driver. 'I am losing sleep based on the unknowns around tariffs,' said Mike Petrakis, founder and chief executive at PowerPay, a fintech home-improvement lender that expects to do $5 billion to $6 billion in originations this year, which would be a record for the company. While inflation has been hitting lower-income homeowners harder than wealthier clients, Petrakis said consumers replacing a roof or remodeling a bathroom still aren't yet seeing tariffs resulting in higher prices for projects. That's because big national contractors on PowerPay's platform have been able to absorb those costs for now, taking a modest hit to their margins, according to Petrakis. However, he expects consumers to see prices on home-improvement projects to be reset next year, though he hopes instead that 'tariff noise goes away' in six months. See: There's 'no evidence' of tariff inflation, top Trump aide says. Is he right? PowerPay, which started lending in late 2019, has been in the unique position of benefiting from a boom in home improvements since the pandemic. As home prices skyrocketed during the COVID crisis, owners with ultralow 30-year fixed mortgage rates started taping into the trillions of dollars in new home equity to fix up their homes. But like other businesses, those projects also hinge on the ability and willingness of consumers to keep spending. 'So far, many businesses have managed to soften the impact of rising costs by relying on pre-tariff inventories, utilizing trade zones and accepting slimmer profit margins,' said Lydia Boussour, a senior economist at EY-Parthenon, in a Tuesday client note. The consumer-price index rose 0.3% in July, increasing less than expected. It was steady at 2.7% on a yearly basis. Read: Key inflation rate shows biggest rise in 6 months, CPI shows, but Fed rate cut still appears in play Still, when tariff 'buffers gradually fade, inflation will likely intensify in the coming months,' Boussour said, adding that her team expects yearly headline and core CPI inflation to near 3.2% by year's end — 'entirely a function of the administration's tariff-centric trade agenda.' Consumers getting hit with higher costs from tariffs could set up investors for trouble. 'If things get too quiet, even the tiniest little thing could cause volatility to spike or cause the equity market to get hurt,' said Joe Ferrara, an investment strategist at Gateway Investment Advisers, which manages low-volatility equity strategies. While he thinks companies have grown more cautious, including by lowering their guidance in light of Trump's tariffs, a reckoning for households looks likely. 'I still don't think the consumer has fully felt the brunt of all the tariffs,' Ferrara said Tuesday. Paying a dollar more for bunch of bananas might be manageable, he said, but anyone needing to buy a big-ticket item, like a new washing machine or a car, could face paying hundreds of dollars more, due to tariffs, he said. 'That's a big impact,' he said. 'The next year or so could be really interesting for the consumer, if we still stay in this kind of inflation picture.' See: Ford warns its tariff hit will grow to $2 billion, offers downbeat guidance The S&P 500 and Dow Jones Industrial Average DJIA both added 1.1% on Tuesday, while the Nasdaq Composite Index COMP gained 1.4% and Wall Street's Cboe Volatility Index, VIX or 'fear gauge,' tumbled more than 9% to 14.73, its lowest close since Dec. 26, according to FactSet. A fresh look at spending patterns by U.S. income groups shows the highest earners have been driving growth in the wake of the pandemic, almost by themselves. Researchers at the Federal Reserve, in a July paper, found that high-income households earning at least $100,000 a year continued to spendstrongly since mid-2021, while spending by low- and middle-income households lagged through the end of 2024. 'We've just got this huge bifurcated economy right now,' said Byron Anderson, head of fixed income at Laffer Tengler Investments, noting that U.S. corporations may be doing well, but lower-income earners already looked tapped out when it comes to spending. Anderson thinks corporations can handle 'eating' tariffs for now, but that they eventually would lead to lower growth and lower earnings. Rate cuts from the Fed could help, especially if another weak jobs report causes panic and results in a few jumbo-sized rate cuts. Still, Anderson worries it still might be too late to save the broader consumer. Petrakis, the CEO at PowerPay, thinks Fed rate cuts could help, but that the 30-year fixed mortgage rate still would need to drop to around 5.5% to spur a fresh refinancing wave, a level last seen in 2022. As the S&P 500 ends above 6,400 for the first time, here are a few reasons for caution Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
