Weak NFP Triggers Rate Expectation Repricing
The latest US July nonfarm payrolls report showed an unexpected decline of approximately 23,000 jobs, sharply diverging from expectations for a rise of around 80,000.
This weakness in the labor market led to a repricing of interest-rate expectations, with traders lowering the probability of another Fed rate hike in September from around 58% to 42% using the CME FedWatch Tool.
The shift in rate expectations had several chain reactions: US Treasury yields moved lower, the US dollar weakened, valuation pressure on long-duration assets eased, growth-oriented technology stocks became more attractive, and non-yielding assets such as gold received support.
In response to this, tech stocks and gold surged, with the SPDR S&P 500 ETF Trust (SPY) gaining approximately 3.5% for the week, its best weekly performance since mid-April, while gold rose around 2.4% in one session, briefly reaching $4,347.70 per ounce.
Earnings results further widened the performance gap between individual stocks, with photonics components manufacturer Coherent (COHR) becoming a market highlight, gaining approximately 43.5% over five trading days, and Palantir (PLTR) posting standout results with its second-quarter revenue rising approximately 93% year on year to $1.94 billion.