Stocks Rise as Jobs Fuel Bets Fed to Stay on Hold: Markets Wrap

A screen displays share prices inside the Kabuto One building in Tokyo, Japan, on Friday, May 8, 2026. Asian stocks pulled back from a record high and crude oil rose as escalating tensions in the Middle East revived concerns over energy supplies, testing the durability of the recent equity rally. Photographer: Kiyoshi Ota/Bloomberg Photo by Kiyoshi Ota /Bloomberg

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(Bloomberg) — A slower-than-anticipated increase in US jobs drove stocks higher and short-dated bond yields fell on bets the Federal Reserve won’t be forced to raise interest rates any time soon.

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Wall Street’s pre-holiday trading session saw the S&P 500 extending this week’s advance. Treasury two-year yields dropped five basis points to 4.12%. The dollar retreated against all developed-world currencies. Money markets showed traders pricing in about a 20% chance of a Fed hike this month, down from 33% before the data. Oil deepened its slide below pre-war levels.

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US hiring slowed sharply in June, curbing some of the budding momentum in job growth this year. Nonfarm payrolls increased 57,000 last month after downward revisions to the prior two months took some of the shine off recent blockbuster reports. The unemployment rate fell to 4.2%.

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“Just when investors thought they had the labor market figured out, the June jobs report threw them a curveball,” said Bret Kenwell at eToro. “A disappointing jobs report isn’t exactly good news, but it may give risk-on assets a silver lining: less pressure on the Fed to take a hawkish stance.”

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While today’s report doesn’t scream labor-market trouble, he noted it does cool the narrative a bit. That may nudge the conversation back toward the Fed’s dual mandate — balancing inflation with employment — rather than forcing policymakers to focus almost exclusively on price pressures, Kenwell added.

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Ongoing labor market stability likely leaves the Fed focusing on upcoming inflation data to determine its appetite for tightening policy, according to Kay Haigh at Goldman Sachs Asset Management. While he still sees a path for the Fed to stay on hold for the rest of the year, any further upside surprises to inflation could convince the committee to hike sooner rather than later.

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Fed Chairman Kevin Warsh this week said price risks have come down in recent weeks, while repeating his determination to bring inflation back to the US central bank’s 2% target. While officials held rates steady last month, they did signal growing support for hikes this year amid inflation running at its fastest since 2023.

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“Warsh can wipe his brow,” said Brian Jacobsen at Annex Wealth Management. “The labor market isn’t overheating. Inflation expectations are moderating. It means the Fed can take the whole summer off it wants as it won’t have to hike or cut.”

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Even though market-based expectations continue to bake in one or two rate hikes before year-end, the odds that the Fed instead finds room to cut are being underappreciated, according to Jason Pride at Glenmede.

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“Hiring has downshifted on the margin and the inflation impulse that kept the Fed on hold has been energy-driven so far, a pressure that should fade as post-ceasefire oil price declines feed through to headline inflation in the coming months,” he said. “Should that play out alongside a labor market holding at this lower gear, the Fed may find itself in a position to cut rates later this year.”