At the close of trading yesterday, US stock indices ended in the red. The S&P 500 fell by 1.60%, while the Nasdaq 100 dropped by 2.24%. The Dow Jones Industrial Average declined by 1.43%.
Treasury bonds rallied, and short-term yields saw their biggest drop since late 2023 after weaker-than-expected U.S. employment data led traders to increase bets that the Federal Reserve will cut interest rates as early as next month. Data released by the Labor Department showed that the US economy added just 73,000 jobs, well below economists' forecasts. The unemployment rate unexpectedly rose to 4.2%, and wage growth slowed. These indicators suggest a potential cooling of the labor market, which could ease inflationary pressures and give the Fed more flexibility in monetary policy.
Bond yields plunged: two-year Treasury yields fell by 29 basis points, with the move accelerating Friday evening after Federal Reserve Governor Adriana Kugler announced her resignation.
Throughout the day, traders increased their bets on rate cuts, and markets are now fully pricing in two rate reductions this year. The probability of the first cut happening at the next Fed meeting in September has surged to 90%, compared to less than 40% before the release of the jobs report. This weighed heavily on US stocks: the S&P 500 fell nearly 2% at one point. The dollar dropped by 1% but later pared losses after President Donald Trump announced the dismissal of the head of the Bureau of Labor Statistics, accusing her of politicizing the report.
The sharp shift in bond yields reflects a dramatic change in sentiment regarding monetary policy prospects, partly driven by Trump's continued pressure on Fed Chair Jerome Powell to cut rates despite rising inflation expectations linked to tariffs.
It is worth noting that expectations for rate cuts collapsed late last month following Powell's hawkish comments on inflation and the economy. But Friday's weak job growth, seen by many as validating Trump's stance and that of the two Fed governors he appointed, who dissented from the July 30 decision not to cut rates, could mark a turning point.
On Friday, Fed Governors Christopher Waller and Michelle Bowman expressed concern that policymakers' hesitation to lower rates could hurt the labor market. As noted above, both voted against the Fed's decision to keep the benchmark borrowing rate at 4.25%–4.5%, instead advocating for a 25-basis-point cut.
As for the technical picture on the S&P 500, buyers' key task today will be to overcome the nearest resistance at $6,267. This would signal potential upside and open the way for a move toward $6,276. Equally important is gaining control over $6,285, which would strengthen bullish positions. In case of a pullback amid waning risk appetite, bulls must defend the $6,257 area. A break below this level would push the instrument back to $6,245 and possibly further down to $6,234.
