Market Pulls Back on Weak Jobs Data and New Tariffs

The U.S. stock market endured a significant downturn last week, largely due to unexpectedly weak hiring data and the imposition of new tariffs by President Trump. After reaching record highs for six straight sessions in the prior week, the S&P 500 ended last week in the red, with last Friday marking the worst single-day performance since May. The remaining major benchmark indexes also closed lower last week. Investors moved from risk on the heels of an underwhelming jobs report for July, which led to concerns of slowing economic growth, while new tariffs on imports from several U.S. trading partners heightened fears of accelerating inflation. Weak hiring numbers also increased expectations for a Federal Reserve interest rate cut in September. This sent Treasury yields sharply lower, with 10-year Treasury yields hitting their lowest rates since the end of April. Crude oil prices ended last week higher, although reports that OPEC+ may agree to increase production could drag prices lower.

Fed Holds Rates Steady Amid Slowing Job Growth and Elevated Uncertainty

By a 9-2 tally, with one member absent, the Federal Open Market Committee (FOMC) voted to maintain interest rates at their current 4.25%-4.50% range. In making its decision, the FOMC noted that growth of economic activity moderated in the first half of the year, while swings in net exports continued to affect data. However, the unemployment rate remained low, and labor market conditions were solid, although inflation was somewhat elevated. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC indicated that it would carefully assess incoming data, the evolving outlook and the balance of risks. Nevertheless, the FOMC observed that uncertainty about the economic outlook remained elevated.

Following the Fed’s decision, job growth in July came in well below expectations, with the addition of only 73,000 new jobs. July’s total follows larger-than-normal downward revisions in May and June, which combined were 258,000 lower than previously reported. The unemployment rate ticked up 0.1 percentage point to 4.2%. The number of unemployed, at 7.2 million, rose by 221,000 last month. In July, the number of long-term unemployed (those jobless for 27 weeks or more) increased by 179,000 to 1.8 million, accounting for 24.9% of all unemployed people.

Eye on the Week Ahead

This is a slow week for economic reports. Investors, instead, will look toward next week when the latest inflation data is released.