Weaker Payrolls Report Drives Repricing of Fed Tightening Expectations

The US stock market made significant gains early in the week due to strong corporate earnings, particularly in AI-related technology companies. This boosted investor confidence and reinforced the outlook for corporate earnings. Additionally, optimism surrounding a potential reopening of the Strait of Hormuz helped alleviate concerns about energy-driven inflation.

Sentiment remained positive throughout the week as softer ADP and JOLTS labour market data led investors to expect a more patient Federal Reserve. Meanwhile, resilient ISM services data indicated continued economic expansion. However, mixed semiconductor earnings later in the week tempered enthusiasm somewhat.

But it was the sharply weaker-than-expected nonfarm payrolls report that ultimately drove a significant repricing of Fed tightening expectations and supported risk assets. Canadian equities also benefited from this supportive rate backdrop, with domestic employment data beating expectations on Friday further supporting the market.