Rebound in S&P 500 After Weak Jobs Data Fuels Rate Cut Optimism

US stocks opened higher on Monday as investors reacted to last week’s weaker-than-expected employment data, which fueled speculation that the Federal Reserve may soon cut interest rates to bolster economic growth.

‍

By 9:31 a.m. in New York, the S&P 500 Index was up 0.7%, while the Nasdaq 100, led by technology shares, climbed 1%. This uptick followed a sharp Friday selloff that dragged both major benchmarks down more than 1%.

‍

President Donald Trump has signaled that he will soon nominate a new Federal Reserve governor and a new jobs data statistician, two decisions that could influence his broader economic agenda. With unemployment on the rise and job creation slowing, market participants are increasingly questioning the Fed’s cautious stance on rate adjustments. Many expect policymakers to introduce a rate cut as early as September to counter growing economic pressures.

‍

However, some strategists believe the market’s optimism may be premature. “Even with unemployment ticking up to 4.2%, the labor market remains relatively strong,” explained Cayla Seder, macro multi-asset strategist at State Street. She added that upcoming consumer price index data is expected to show inflation inching higher, which could complicate the Fed’s decision-making process. “Any rally driven by hopes for aggressive rate cuts might not have lasting power,” Seder noted.

‍

Analysts are also pointing to patterns that suggest a potential repeat of the market pullbacks experienced during the summers of 2023 and 2024. While one of those downturns was severe and the other mild, both required until November for stocks to fully rebound from losses exceeding 10%.

‍

Despite these near-term risks, Morgan Stanley’s chief U.S. equity strategist Michael Wilson remains constructive on equities. “We view market dips as opportunities to buy,” Wilson said in his weekly note. “Our outlook for the next 12 months remains bullish. We expect the Fed will eventually pivot to rate cuts. Friday’s drop may have been the only significant dip for now, unless upcoming payroll or growth data surprises on the downside.”

‍

Investors also have a busy week ahead as earnings season continues. According to Intelligence, 330 companies in the S&P 500 have reported so far, with 82% beating analyst expectations. That’s an improvement from the 78% beat rate recorded in the first quarter.

‍

Goldman Sachs strategists, led by David Kostin, highlighted that this earnings season has underscored the dominance of major U.S. technology firms. The “Magnificent Seven” stocks consisting of leading tech giants posted an impressive 26% profit growth in the second quarter compared to the same period last year. In contrast, the remaining 493 S&P 500 companies managed only 4% earnings growth.

‍

While July saw strong buying activity that propelled the S&P 500 to a record 10 new all-time highs, corporate insiders were notably less enthusiastic. According to Washington Service data, executives at just 151 S&P 500 companies purchased shares of their own firms last month the lowest level seen since at least 2018.

‍

In company-specific developments, Tesla Inc. approved an interim stock award for CEO Elon Musk valued at roughly $30 billion. The massive compensation package is designed to ensure Musk remains focused on advancing Tesla’s growth and innovation.

‍

Meanwhile, Blade Air Mobility Inc. shares surged following news that Joby Aviation Inc. plans to acquire the helicopter ride-share company. Joby’s stock also advanced on the announcement. Additionally, Opendoor Technologies Inc. saw its shares bounce back after the company regained compliance with Nasdaq’s listing requirements.

‍

Overall, while concerns about slowing job growth and future rate cuts linger, many analysts believe the longer-term outlook for U.S. equities remains positive. Investors are closely watching upcoming economic data and corporate earnings for further clues on the market’s direction heading into the fall.

‍