U.S. stocks advanced in early trading on Friday, August 7, placing all three major indexes on track to end the week in positive territory, as a surprising drop in July nonfarm payrolls led traders to anticipate the Federal Reserve will hold interest rates steady.
Shares of Airbnb climbed 7% after the vacation rental company reported revenue and profit that exceeded analyst expectations. Meanwhile, Cloudflare surged 16% following the cloud cybersecurity firm's release of robust guidance for both the full year and the current quarter. Oil prices edged lower, with West Texas Intermediate crude for September delivery falling 0.6% to $76.85 per barrel and the international benchmark Brent crude declining 0.7% to $81.90 per barrel.
Wall Street had closed lower in the previous session as rising oil prices weighed on equities. The Dow Jones Industrial Average dropped over 460 points, or 0.9%, snapping a five-day winning streak. The S&P 500 fell 0.2%, and the Nasdaq Composite slipped 0.1%. Despite this, the market is still on track for its second consecutive weekly gain. The Nasdaq is poised to post its best weekly performance since May, fueled by a rebound in chip stocks, with the iShares Semiconductor ETF (SOXX) rising more than 5% for the week.
Market Outlook and Key Drivers
Despite the recent pullback, market sentiment among many on Wall Street has improved this week. Investors are betting that a potential agreement on navigation through the Strait of Hormuz could ultimately lower oil prices and curb inflation expectations. The technology sector has been a standout, with semiconductors rebounding after last month's momentum-trade unwinding convinced many that the market has undergone the correction needed for its next leg higher. Strong corporate earnings have further bolstered confidence. "There will be a wave of chasing the rally," said Tom Lee, head of research at Fundstrat Global Advisors, on Thursday. "I think that wave will push the index to 7,900 or 8,000 this month."
July Jobs Report Disappoints
The U.S. Bureau of Labor Statistics reported on Friday that the economy unexpectedly lost jobs in July, while the unemployment rate edged lower, signaling a slowdown. On a seasonally adjusted basis, nonfarm payrolls decreased by 23,000 in July, compared to a downwardly revised decline of 20,000 in June. The reading fell far short of the 83,000 gain expected by economists polled by Dow Jones. Meanwhile, the unemployment rate ticked down to 4.1%, and the labor force participation rate slipped further to 61.4%, its lowest level in over five years. In addition to the weak June and July figures, the final May data was revised down to 63,000, a decrease of 66,000 from previous estimates. Following these revisions, the 12-month average payroll growth slowed to just 34,000 jobs.
The decline in employment was primarily driven by a loss of 50,000 jobs in local government education and a reduction of 19,000 jobs in retail. Financial activities also shed 14,000 positions. The healthcare sector, previously a major driver of job growth, added only 22,000 jobs, falling short of its 12-month average of 36,000. Stagnant job growth was accompanied by a near-flat increase in worker wages. Average hourly earnings rose by only 2 cents, bringing the 12-month average gain to 3.2%, below the market's expectation of 3.5%.
The report arrives as Federal Reserve policymakers are divided on the path for interest rates. The labor market has improved from its slump in 2025, but inflation remains well above the central bank's 2% target. Several Fed officials have recently indicated support for raising rates as early as September if price increases do not slow, following the Federal Open Market Committee's 9-3 vote to hold the benchmark rate steady last week. Following the jobs data, traders adjusted their bets on the timing of a rate hike. According to the CME FedWatch tool, the probability of a rate hike in September fell to 44%, while the chance of a move in October dropped to 58.3%.