Stocks and Bonds Climb as Weak Jobs Bolster Fed Rate Cut Chances

The S&P 500 Index ($SPX) (SPY) today is up by +0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.02%.  September E-mini S&P futures (ESU25) are up +0.56%, and September E-mini Nasdaq futures (NQU25) are up +1.00%. 

Stock indexes are mostly higher today, driven by lower T-note yields and increased chances of a Fed rate cut later this month.  T-note yields fell after the July JOLTS job openings fell more than expected to a 10-month low.  The 10-year T-note yield is down -5 bp to 4.22%. 

Strength in megacap technology stocks is also supporting gains in the broader market.  Alphabet is up more than +8% after a judge ruled in an antitrust case late Tuesday that the company won't be forced to sell its Chrome browser.  Also, Apple is up more than +3% after a court ruling stopped short of barring the company's lucrative search arrangement with Google, a deal that has generated roughly $20 billion in revenue a year for Apple. 

The weakness in energy producing stocks and energy service providers is a negative factor for the overall market today, with the price of WTI crude oil down more than -2%.

US Jul JOLTS job openings fell -176,000 to a 10-month low of 7.181 million, showing a weaker labor market than expectations of 7.380 million.

US Jul factory orders fell -1.3% m/m, right on expectations, and the second straight month orders have declined.

US MBA mortgage applications fell -1.2% in the week ended August 29, with the purchase mortgage sub-index down -3.1% and the refinancing mortgage sub-index up +0.9%.  The average 30-year fixed rate mortgage fell -5 bp to 6.64% from 6.69% in the prior week.

Fed Governor Christopher Waller said the fed funds rate is currently above the neutral rate, meaning monetary policy is restricting the economy, and that inflation is likely to move "much closer" to the Fed's goal in six or seven months.  He added that the Fed should aim to get ahead of a sharp slowdown in the job market and "we need to start cutting interest rates at the next meeting" and make multiple cuts in the coming months.

St. Louis Fed President Alberto Musalem said, "The current modestly restrictive setting of the policy rate is consistent with today's full employment labor market and core inflation nearly one percentage point above the Fed's 2% target," and it's important to take a "balanced approach" to policy right now and not weight too much to support the labor market or to fight inflation. 

Atlanta Fed President Raphael Bostic reiterated that he sees one interest rate cut this year, as price stability remains his primary concern, and it's not unambiguously clear that the labor market is weakening materially.

This week's US economic calendar is busy.  Later today, the Fed's Beige Book will be released.  On Thursday, the Aug ADP employment change is expected to increase by +80,000.  Also, weekly initial unemployment claims are expected to increase by +1,000 to 230,000, and Q2 nonfarm productivity is expected to be revised upward to 2.7% from the previously reported 2.4%, with Q2 unit labor costs expected to be revised downward to 1.4% from 1.6%.  In addition, the Aug trade deficit is expected to widen to -$78.0 billion from -$60.2 billion in June.  Finally, the Aug ISM services index is expected to climb by +0.8 to 50.9.  On Friday, Aug nonfarm payrolls are expected to rise by +75,000, and the Aug unemployment rate is expected to rise by 0.1 to 4.3%.  Aug average hourly earnings are expected to increase +0.3% m/m and +3.7% y/y.

Regarding tariffs, a federal appeals court ruled late last Friday that President Trump exceeded his authority by imposing global tariffs without Congressional approval, but the court let the tariffs remain in place while appeals continue.  The US Court of Appeals for the Federal Circuit Court said, "The statute bestows significant authority on the President to undertake a number of actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax."  The case now appears to be headed to the Supreme Court for a final decision.  According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

Federal funds futures prices are discounting the chances of a -25 bp rate cut at 95% at the next FOMC meeting on September 16-17.  The markets are discounting the chances at 53% for a second -25 bp rate cut at the following meeting on October 28-29.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.63%.  China's Shanghai Composite closed down -1.16%.  Japan's Nikkei Stock 225 closed down -0.88%.

Interest Rates

December 10-year T-notes (ZNZ5) today are up +12 ticks, and the 10-year T-note yield is down -4.5 bp to 4.217%. 

Dec T-notes are moving higher today after the US Jul JOLTS job openings fell more than expected to a 10-month low, boosting the chances for a Fed interest rate cut at the September 16-17 FOMC meeting to 95%, according to the swaps market.  Also, today's 2% fall in WTI crude prices has reduced inflation expectations as the 10-year breakeven inflation rate fell to a 1.5-week low of 2.406%, a bullish factor for T-notes. 

However, T-notes remain under pressure from supply risks.  About $55 billion of corporate debt securities are expected to be priced this week, which will prompt bond dealers to enter short positions on T-note futures as a hedge against the incoming supply.  Also, investors are demanding higher yields for holding government debt in the face of spiraling budget deficits and sticky inflation.  Finally, T-note yields are climbing on concerns over Fed independence, with President Trump trying to oust Fed Governor Cook.  The worry is that Mr. Trump is trying to replace Cook and other Fed officials with policymakers more inclined to lower interest rates regardless of inflation risks.

European government bond yields today are moving lower.  The 10-year German bund yield is down -3.9 bp to 2.747%.  10-year UK gilt yield fell from a 7.5-month high of 4.845% and is down -5.0 bp to 4.750%.

Eurozone July PPI eased +0.2% y/y from +0.6% y/y in June, slightly stronger than expectations of +0.1% y/y.

The Eurozone Aug S&P composite PMI was revised downward by -0.1 to 51.0 from the previously reported 51.1.

Swaps are discounting the chances at 1% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Alphabet (GOOGL) is up more than +8% to lead gainers in the S&P 50 and Nasdaq 100 after a judge ruled in an antitrust case late Tuesday that the company won't be forced to sell its Chrome browser. 

Apple (AAPL) is up more than +3% to lead gainers in the Dow Jones Industrials after a court ruling stopped short of barring the company's lucrative search arrangement with Google, a deal that has generated roughly $20 billion in revenue a year for Apple.

The Campbell's Company (CPB) is up more than +4% after reporting Q4 adjusted EPS of 62 cents, better than the consensus of 56 cents.

Western Digital (WDC) is up more than +3% after Morgan Stanley named the stock its "Top Pick" with an overweight rating and a price target of $99.

Macy's (M) is up more than +19% after reporting Q2 net sales of $4.81 billion, better than the consensus of $4.71 billion, and raising its full-year net sales estimate to $21.15 billion-$21.45 billion from a previous estimate of $21.00 billion-$21.40 billion. 

HealthEquity (HQY) is up more than +5% after reporting Q2 adjusted EPS of $1.08, stronger than the consensus of 92 cents, and raising its 2026 adjusted EPS forecast to $3.74-$3.91 from a previous estimate of $3.61-$3.78, above the consensus of $3.73.

Gold mining stocks are moving higher today, with the price of COMEX gold posting an all-time high.  As a result, Anglogold Ashanti Plc (AU) is up more than +3% and Gold Fields Ltd (GFI) is up more than +1%.   

Kraft Heinz Co (KHC) is up more than +1% after Morgan Stanley upgraded the stock to equal weight from underweight, citing reasonable valuation.

Dollar Tree (DLTR) is down more than -7% to lead losers in the S&P 500 after forecasting 2026 adjusted EPS of $5.32-$5.72, the midpoint below the consensus of $5.53. 

Energy stocks and energy service providers are under pressure today with the price of WTI crude oil down more than -2%.  ConocoPhillips (COP), Halliburton (HAL), and APA Corp (APA) are down more than -4%.  Also, Occidental Petroleum (OXY) and Devon Energy (DVN) are down more than -3%.  In addition, Exxon Mobil (XOM), Phillips 66 (PSX), and Schlumberger NV (SLB) are down more than -2%.  Finally, Diamondback Energy (FANG) is down more than -3% to lead losers in the Nasdaq 100, and Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials. 

Bruker Corporation (BRKR) is down more than -10% after announcing a public offering of $600 million of Mandatory Convertible Preferred Stock.   

Smithfield Foods (SFD) is down more than -4% after announcing the launch of a secondary public offering of 16 million shares of common stock. 

Hamilton Lane Incorporated (HLNE) is down more than -3% after announcing it has commenced an underwritten public offering of 528,705 shares of Class A common stock.   

Zscaler (ZS) is down more than -2% after forecasting 2026 adjusted EPS of $3.64-$3.68, weaker than the consensus of $3.68. 

Marvell Technology (MRVL) is down more than -2% as analysts have lowered their price targets for the stock by an average of 8.6% since it reported earnings last Thursday.

Earnings Reports(9/3/2025)

Dollar Tree Inc (DLTR), Gitlab Inc (GTLB), Hewlett Packard Enterprise Co (HPE), Macy's Inc (M), Salesforce Inc (CRM), The Campbell's Company (CPB).