U.S. stock indices concluded Friday’s trading session significantly higher, primarily driven by an unexpected decline in July nonfarm payrolls that substantially eased concerns about an imminent Federal Reserve interest rate hike. This market optimism was further bolstered by a robust corporate earnings season, with major indices recording solid gains.
Weak Jobs Report Shifts Fed Rate Hike Expectations
The catalyst for Friday’s market upswing was a surprisingly soft U.S. July jobs report. Nonfarm payrolls unexpectedly fell by -23,000, a stark contrast to expectations for an +80,000 increase and marking the first decline in five months. Furthermore, June payrolls were revised downward to show a +20,000 increase from the previously reported +57,000. While the July unemployment rate unexpectedly declined by -0.1 to a 13-month low of 4.1%, indicating some underlying labor market strength, average hourly earnings rose less than anticipated, increasing by +0.1% month-over-month and +3.2% year-over-year, weaker than the expected +0.3% m/m and +3.5% y/y.
This data immediately impacted bond markets, with the 10-year T-note yield falling -3 basis points to 4.65%. The payroll report significantly altered market expectations for the Federal Reserve’s next move, cutting the chances of a Fed rate hike at the upcoming FOMC meeting on September 15-16 to 44% from 58% before the report. St. Louis Fed President Alberto Musalem had previously emphasized that policymakers cannot afford to tolerate higher inflation, stating that “it is crucial that monetary policy put a meaningful restraint on underlying inflation, rather than tolerating somewhat higher inflation today to pursue productivity growth tomorrow.” However, the latest jobs data suggests less immediate pressure for aggressive tightening.
Strong Corporate Earnings Provide Additional Tailwinds
Beyond the jobs report, a strong corporate earnings season continued to provide a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest that Q2 earnings may increase by +23%, closely following Q1’s impressive +30% growth. Artificial intelligence (AI) spending is expected to be a significant contributor, with AI infrastructure stocks projected to account for nearly 60% of the S&P 500’s earnings-per-share growth in Q2. So far, earnings results have been overwhelmingly positive, with 86% of the 440 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data.
Market Performance Across Sectors and Individual Stocks
All three major U.S. stock indices closed higher on Friday. The S&P 500 Index ($SPX) (SPY) rose +0.62%, the Dow Jones Industrial Average ($DOWI) (DIA) gained +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) led the advance with a +1.19% increase. September E-mini S&P futures (ESU26) rose +0.55%, and September E-mini Nasdaq futures (NQU26) climbed +1.17%.
Sector-wise, software stocks surged, led by Atlassian (TEAM), which soared more than +35% after forecasting stronger-than-expected Q1 revenue. Other notable software gainers included Palantir Technologies (PLTR) up more than +10%, ServiceNow (NOW) up more than +6%, Workday (WDAY) up more than +5%, and Salesforce (CRM) up more than +3%. Cybersecurity stocks also rallied, with Cloudflare (NET) jumping +5% following better-than-expected quarterly earnings. Chipmakers received significant support, as Microchip Technology (MCHP) rallied more than +13% on strong net sales forecasts for next quarter, alongside gains in Qualcomm (QCOM) up more than +4% and Nvidia (NVDA) up more than +2%.
Mining stocks also saw a strong day, benefiting from a surge in gold and silver prices. Coeur Mining (CDE) closed up more than +10%, and Newmont Corp (NEM) gained more than +7%. Among other significant movers, Doximity (DOCS) climbed more than +31% after raising its 2027 revenue forecast, while Twilio (TWLO) surged more than +24% on boosted full-year adjusted operating income forecasts. Airbnb (ABNB) was a top performer, rising more than +17% after reporting strong Q2 revenue and improving full-year guidance.
Conversely, some companies faced headwinds. Trade Desk (TTD) led the losers in the S&P 500, falling more than -21% after reporting weaker-than-expected Q2 revenue and a significantly lower Q3 revenue forecast. Sweetgreen (SG) dropped more than -8% after cutting its full-year outlook, citing reduced diner willingness for freshly prepared foods during a cyclospora outbreak.
Global Markets and Other Economic Indicators
Overseas stock markets presented a mixed picture on Friday. The Euro Stoxx 50 climbed to a new all-time high, closing up +0.33%, and China’s Shanghai Composite rose to a 3-week high, gaining +1.02%. Japan’s Nikkei-225 Stock Average, however, closed down -0.12%. European government bond yields generally moved lower, with the 10-year German bund yield falling -0.8 basis points to 3.132%.
In other economic news, US June consumer credit rose $14.173 billion, exceeding expectations. German trade data was stronger than anticipated, with June exports rising +0.9% m/m and imports increasing +4.4% m/m. Meanwhile, September WTI crude oil prices initially rose more than +1% on news of a potential Iran-Oman agreement to partially reopen the Strait of Hormuz but later gave up gains amid reports of a U.S. blockade lift contingent on the deal.
The confluence of a surprisingly weak U.S. jobs report, which tempered expectations for aggressive Fed monetary policy, and continued strength in corporate earnings provided a robust foundation for Friday’s equity market rally. Investors appear to be recalibrating their outlook, finding reassurance in data that suggests a less hawkish central bank stance, while simultaneously rewarding companies demonstrating strong financial performance and growth prospects, particularly within the burgeoning AI sector.
