Stocks Sink as Bonds Jump on Deepening Jobs Cracks: Markets Wrap

(Bloomberg) — Wall Street saw a broad flight from risk assets, with stocks sinking amid mounting signs of job-market weakness, President Donald Trump’s latest volley of tariffs and geopolitical worries. Short-term Treasury yields plunged the most since 2023 on bets the Federal Reserve will cut rates.

The S&P 500 sank 1.6%, the most since May. An uninspiring outlook from Amazon.com Inc. spurred a rout in megacaps. A closely watched volatility gauge – the VIX – topped 20. Two-year yields tumbled 28 basis points to 3.68%. The dollar snapped a six-day advance. Gold climbed as Trump said the US is moving two nuclear submarines to respond to “provocative” statements from former Russian President Dmitry Medvedev.

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Job growth cooled sharply and the unemployment rate rose, with payrolls increasing 73,000 in July after the prior two months were revised down by nearly 260,000. In the last three months, employment growth has averaged a paltry 35,000. Money markets fully priced in two rate cuts in 2025, with a 90% chance of a reduction in September.

“What had looked like a Teflon labor market showed some scratches this morning,” said Ellen Zentner at Morgan Stanley Wealth Management. “A Fed that still appeared hesitant to lower rates may see a clearer path to a September cut, especially if data over the next month confirms the trend.”

The pullback in stocks marked a sharp reversal for markets that had raced to record highs on the back of resilient economic growth, signs of cooling inflation, and a frenzy for AI-linked shares. With valuations elevated, traders are now confronting a harsher backdrop amid renewed debate over how quickly the Fed might be forced to cut rates.

“The debate now is whether the White House was right, and the Fed was too late,” said Scott Helfstein at Global X. “The Fed was probably right to wait, but job growth and the economy is slowing from a blistering rate.”

Trump told officials to fire Erika McEntarfer, the commissioner of the Bureau of Labor Statistics, hours after a report showed US job growth cooled sharply.

“The US public statistics represent the gold standard,” said Neil Dutta at Renaissance Macro Research. “Calling them into question because they tell you something you don’t like undercuts market confidence.”

Cleveland Fed President Beth Hammack, speaking on Bloomberg Television after the numbers came out, said the labor market still looked healthy — though it was a “disappointing report to be sure.”

Ahead of the data, Fed Governors Christopher Waller and Michelle Bowman issued statements explaining why they dissented Wednesday from the decision to hold rates steady, expressing concerns that hesitance to cut rates could risk unnecessary damage to the labor market.

Trump said Fed Chair Jerome Powell should be put “out to pasture” and called on the central bank’s board to “assume control” if rates were not lowered.

Fed Governor Adriana Kugler will step down from her position on the central bank’s board, handing Trump a sooner-than-anticipated opportunity to install a new policymaker who aligns with his vision for rates.

To Alexandra Wilson-Elizondo at Goldman Sachs Asset Management, the jobs miss directly challenges the Fed’s hawkish posture from this week’s meeting.

“Just two days after the conclusion of this month’s Fed meeting, suddenly the dual mandate is back on the table,” said Chris Zaccarelli at Northlight Asset Management. “The Fed will again need to balance a slowing job market with inflation which isn’t slowing fast enough.”

Today’s report provides the evidence the Fed needs to make a September rate adjustment, so the only question is how large that will be, according to Rick Rieder at BlackRock.

“September is a lock for a rate cut — and it might even be a 50-basis point move to make up the lost time,” said Jamie Cox at Harris Financial Group.

At eToro, Bret Kenwell says the most-obvious question is: How would the Fed handle a slowdown in the labor market alongside a rise in inflation?

“While neither is at an extreme right now, inflation is moving higher and the labor market is losing steam,” he said. “When push comes to shove, the Fed would likely step in by easing financial conditions if the labor market truly begins to deteriorate, but it may not be as fast or as accommodating if inflation remains stubbornly high.”

To Marvin Loh at State Street Global Markets, the latest jobs data signal what a tough balancing act the Fed has given that wages are still growing at a decent clip and tariffs are still a major uncertainty.

Four months after Trump shocked the world by unveiling a placard full of tariff rates, his revisions Thursday left investors scrambling to grasp the full impacts of those levies. At an average of 15%, the world is still facing some of the steepest US tariffs since the 1930s, roughly six times higher than they were a year ago.

“Our base case remains that the US effective tariff rate should settle at around 15% by the end of the year, and the economic impact is likely to prove manageable,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “Still, tariffs are a headwind for global trade and growth, and they have started to contribute to a rise in inflation.”

With markets already pricing in much of the good news on the trade front, she expects stock volatility to pick up in the near term.

Corporate Highlights:

Amazon.com Inc. projected weaker-than-expected operating income and trailing the sales growth of its cloud rivals, leaving investors searching for signs that the company’s huge investments in artificial intelligence are paying off. Apple Inc. reported its fastest quarterly revenue growth in more than three years, easily topping Wall Street estimates, after demand picked up for the iPhone and products in China. Exxon Mobil Corp. and Chevron Corp. posted better-than-expected results after record oil production cushioned the impact of lower crude prices. Eli Lilly & Co. gained after a report that Medicaid and some Medicare drug plans will experiment with covering expensive weight-loss drugs, a sign the Trump administration is reconsidering its position against expanding coverage of these treatments. Moderna Inc.’s cost-cutting efforts failed to assuage investors who are worried about the decline of its Covid vaccine business. Kleenex-owner Kimberly-Clark Corp. is making inroads with cost-conscious US consumers, as lower-priced household goods items and surging volume helped it beat second-quarter earnings expectations. Reddit Inc. reported its most-profitable quarter to date and projected third-quarter sales that far surpassed analyst expectations, signaling the strength of its growing advertising business. Some of the main moves in markets:

Stocks

The S&P 500 fell 1.6% as of 4 p.m. New York time The Nasdaq 100 fell 2% The Dow Jones Industrial Average fell 1.2% The MSCI World Index fell 1.3% Bloomberg Magnificent 7 Total Return Index fell 3.1% The Russell 2000 Index fell 2% Currencies

The Bloomberg Dollar Spot Index fell 0.9% The euro rose 1.4% to $1.1571 The British pound rose 0.4% to $1.3262 The Japanese yen rose 2.2% to 147.43 per dollar Cryptocurrencies

Bitcoin fell 2.8% to $113,237.39 Ether fell 5.8% to $3,516.39 Bonds

The yield on 10-year Treasuries declined 16 basis points to 4.22% Germany’s 10-year yield declined two basis points to 2.68% Britain’s 10-year yield declined four basis points to 4.53% Commodities

West Texas Intermediate crude fell 2.8% to $67.31 a barrel Spot gold rose 2.1% to $3,357.53 an ounce –With assistance from Denitsa Tsekova, Vildana Hajric, Lu Wang and Julien Ponthus.

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