The US jobs report has turned everything upside down in the stock market. While previously, bad news from the US economy was good news for the S&P 500—since investors raised their bets on Federal Reserve rate cuts—this time, cooling in the labor market triggered a sell-off in the broad equity index. A weakening economy means lower corporate earnings and profits. What's there to cheer about?
At first, out of habit, the S&P 500 shot higher and reached a new record after non-farm payrolls rose by a modest 22,000 in August. But then fear set in. Over the first eight months of the year, the US economy added just under 600,000 jobs. Excluding the COVID-19 pandemic, that's the lowest figure since the 2008-2009 global financial crisis.
Futures markets now imply just a 10% chance of a 50 basis point rate cut at the September Fed meeting. The odds of three rounds of monetary easing jumped from 49% before the jobs report to over 70% afterwards.
Dynamics of Expected Fed Monetary Easing
Donald Trump blamed the Fed for everything. The president said Jerome "Too Late" Powell should have cut rates a long time ago—but, as usual, he's been too slow. US officials believe the Fed's slowness is hurting American workers.
Stock indices fell even as Treasury yields declined. There is an unusual divergence in the market: equity volatility is near its 2025 lows, while Treasury volatility saw its sharpest rally since the April investor shock caused by the White House's Liberation Day tariffs. This raises concerns that the VIX will soon rise and push the S&P 500 into a correction.
Stock and Bond Market Volatility Trends
The broader index's retreat was amplified by a 2.7% drop in NVIDIA shares. The tech giant announced it is helping OpenAI develop and produce an AI accelerator chip. Given the company's significant weight in the S&P 500, it's not surprising that its decline pulled down the entire market—especially with energy and financial shares also in the red. Economic headwinds in the US immediately impacted these sectors.
I believe the market will recover. Investors know the Fed won't act rashly; it will cut rates gradually, in response to further signs of labor market weakness.
Technically, on the daily S&P 500 chart, there was a range bar engulfing a narrow bar. However, the return of prices above fair value at 6460 points to the strength of the bulls. A consolidation above this level will allow buying the broad index on pullbacks toward previously mentioned targets at 6565 and 6700.
