(Bloomberg) — Wall Street traders kept piling into bets the Federal Reserve will cut rates in September as weak labor data lifted bonds. Those wagers also propped up stocks, which halted a two-day rout amid a rally in big tech.
Just days ahead of the US payrolls report, a drop in job openings to the lowest in 10 months saw traders almost fully pricing in a Fed cut this month and projecting at least two in 2025. Treasuries bounced after a slide that put the 30-year yield close to 5%. While most shares in the S&P 500 actually fell, Alphabet Inc. led gains in megacaps as Google dodged a forced sale of Chrome.
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The slide in vacancies indicates companies are becoming more cautious and selective with their hiring as they attempt to gauge the impact of tariffs on the economy. In addition to the openings data, the pace of hiring has slowed and it is taking longer for unemployed people to find another position.
“This data point does confirm the slowing pace of hirings being seen in a variety of stats in the aggregate, but something we’re well aware of — and why the Fed is cutting rates by 25 basis points in two weeks,” said Peter Boockvar at The Boock Report.
Before that, Friday’s jobs data will be a crucial input for Fed officials. Some are less concerned about the slowdown in payrolls growth because it’s being accompanied by a decline in the participation rate. They’re also wary of reducing borrowing costs when inflation is gradually increasing.
Others, like Governor Christopher Waller say the US central bank should begin lowering rates this month and make multiple cuts in the coming months, adding that officials could debate the precise pace of reductions. He spoke on CNBC.
At Bankrate, Mark Hamrick says the broader trend aligns with what he’s been calling a “no fire, no hire” job market. That means, many employers are reluctant to cut jobs, but also cautious about bringing on new workers.
To Krishna Guha at Evercore, the soft so-called JOLTS report hardens further the already high likelihood of a September Fed cut, making it still more difficult for Friday’s jobs report to derail the move.
“As softening in labor demand has not been accompanied by a rise in layoffs or a pullback in spending, investors and policymakers should be wary of interpreting payrolls softness as an imminent recessionary signal,” said Seema Shah at Principal Asset Management.
The report may not be “flashing alarm bells”, but it’s the latest data point that reiterates a soft jobs market in the US, according to Bret Kenwell at eToro.
While the US economy may have the cushion to absorb a softer jobs market, investors want to be careful not to see it develop into a really weak labor market, he said.
“Today’s report is the latest data point that helps tip the Fed’s scale toward a rate cut,” he said. “But in the long-term, investors should not cheer for notable labor-market weakness for the sole benefit of lower rates.”
US rate strategists at Bank of America Corp. made trade recommendations based on the possibility that the Fed will ease policy prematurely.
“We believe the market is likely to price a dovish Fed that over-weights softening employment vs inflation, which our US economists see as a policy mistake,” and “ongoing challenges to Fed independence also influence our core rates views,” BofA strategists including Mark Cabana and Meghan Swiber said.
“A Fed that may be biased to cut rates more aggressively near-term vs what we see justified by fundamentals creates scope for higher inflation risk and potential future hikes,” they wrote.
The Fed has kept rates unchanged so far in 2025, largely due to concerns that tariffs could stoke inflationary pressures. But lackluster employment figures released after the July meeting have prompted greater concern, and Fed Chair Jerome Powell said last week a cut could be warranted, citing a “shifting balance of risks.”
Powell’s recent Jackson Hole speech showed us the Fed’s reaction function is more dovish than we thought, according to Lauren Goodwin at New York Life Investments. Absent a meaningful upside surprise in the jobs report this week, the Fed will cut 25 basis points in September, which is a constructive backdrop for risk assets, she said.
“But at this juncture, we’re still doubtful a September cut points to a prolonged interest rate cutting cycle,” Goodwin noted. “Risks to inflation are real and coming from many angles (tariffs, corporate margin protection, a sharp falloff in labor market supply). What’s more, financial conditions are very loose, making it difficult to justify a rapid rate-cutting cycle in our view.”
In the aftermath of the Fed’s Jackson Hole symposium, BofA clients shelled out roughly $1.5 billion for small-cap stocks, the second-largest allocation in the firm’s data history going back to 2008.
The clients were big net buyers of US equities in week ended Aug. 29, with inflows of $2.3 billion into single stocks and $2.1 billion into exchange-traded funds, strategists led by Jill Carey Hall said.
Stocks bounced after having started September on a sour note amid lofty technology valuations and concerns about global fiscal budgets.
“September began with a predictable wave of volatility, with tariff uncertainty and rumors driving behavior in a vacuum of tangible data,” said Mark Hackett at Nationwide. “Following the tremendous rally since April and given the elevated valuations/expectations and rumbling of macro concern, a period of consolidation is not unexpected or unhealthy.”
Dip Buying
Investors should buy the dip in stocks as global growth is holding up better than expected and the Fed is likely to cut rates going forward, Barclays Plc strategists led by Emmanuel Cau said. While positioning is higher, ample dry powder remains on the sidelines, they noted.
“If anything, add on weakness,” said Steve Chiavarone at Federated Hermes. “If you cut away the noise and volatility, I’m not going to bet against the US market in an environment where earnings are growing, estimates are accelerating, economic data is good and rates are going to come down.”
Meantime, HSBC strategists increased their year-end target for the S&P 500 for the second time in a month, citing a boost from better-than-expected quarterly earnings. Nicole Inui now expects the benchmark to end the year at 6,500 points. The gauge closed Tuesday at 6,415.54.
“We believe that as long as cracks don’t begin to form within AI spending expectations, stocks will continue to grind higher after the seasonally weaker September period,” said Chris Senyek at Wolfe Research. “However, these lofty expectations can cut both ways as we see AI spending expectations as a key risk for 2026.”
Corporate Highlights:
Alphabet Inc.’s Google avoided a breakup after a US judge ruled against the government’s most onerous proposals, including a forced sale of its Chrome browser. While it’s barred from exclusivity deals, Google will still be allowed to pay its partners — a key win for Apple Inc., which has received roughly $20 billion a year for making Google search the default on iPhones. After months of pain, Salesforce Inc. investors will be scrutinizing the software maker’s upcoming earnings for signs it will be a winner in the artificial intelligence boom — or one of its most high-profile victims. Macy’s Inc. raised its annual outlook and reported its best comparable sales growth in three years, the latest signs that consumers are still spending despite concerns about inflation and tariffs. Pfizer Inc. defended the research supporting its Covid vaccine in statement on its website, in a direct response to a social media post by President Donald Trump over the weekend questioning whether drug companies were withholding information about the shots. ConocoPhillips, the largest independent US oil producer, plans to cut as much as a quarter of its global workforce amid lower crude prices and expectations of peaking shale output. WestJet, Canada’s second-largest airline, will purchase 67 Boeing Co. aircraft with an option for more, placing its biggest-ever order in a push for future growth even as trade tensions with the US persist. Tyson Foods Inc. said its supply chain chief left the company after violating internal rules, marking the second senior executive departure for improper behavior in just over a year. Dollar Tree Inc. said that profit for the current quarter would be little changed as the lift from price hikes to offset tariffs wanes. Campbell’s Co.’s earnings beat estimates as Milano cookies helped its snacks business outperform. ServiceNow Inc. is offering federal agencies discounts of as much as 70% on its software, a move aimed at spurring adoption as the Trump administration presses for faster government implementation of artificial intelligence tools. The Trump administration is moving to block the development of more offshore wind projects, the latest in a series of high-profile setbacks for an industry that’s caught the president’s ire. Michael Novogratz’s Galaxy Digital Inc. is offering a version of its Nasdaq-listed shares that can be traded on the Solana blockchain, aiming to spur similar tokenization efforts. A year after losing its spot in Britain’s blue-chip benchmark, Burberry Group Plc is returning to the UK’s stock-market elite. Unilever Plc Chief Executive Officer Fernando Fernandez expects to replace a quarter of the group’s top 200 managers following a performance review, as he leads an overhaul of the maker of Dove soap. “History has ample evidence that bonds will regain favor during times of economic turmoil. Also, risk premiums look more subdued now than back in July and May of this year, when long-dated yields broke above 5%. And a September rate-cut is nearly locked in too. These conditions will cap how much higher yields can go.” — Tatiana Darie, Macro Strategist, Markets Live.
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Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 2:21 p.m. New York time The Nasdaq 100 rose 0.3% The Dow Jones Industrial Average fell 0.5% The MSCI World Index was little changed Bloomberg Magnificent 7 Total Return Index rose 1.8% The Russell 2000 Index fell 0.4% Currencies
The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1666 The British pound rose 0.4% to $1.3444 The Japanese yen rose 0.3% to 147.96 per dollar Cryptocurrencies
Bitcoin rose 0.8% to $112,285.17 Ether rose 3.6% to $4,467.52 Bonds
The yield on 10-year Treasuries declined five basis points to 4.21% Germany’s 10-year yield declined five basis points to 2.74% Britain’s 10-year yield declined five basis points to 4.75% The yield on 2-year Treasuries declined three basis points to 3.61% The yield on 30-year Treasuries declined seven basis points to 4.89% Commodities
West Texas Intermediate crude fell 2.6% to $63.89 a barrel Spot gold rose 1.3% to $3,577.68 an ounce ©2025 Bloomberg L.P.