Investor Sentiment Recovers After Sharp Decline Due to Steep July Employment Slowdown
Probability of September Rate Cut Rises to 85%
US to Implement Reciprocal Tariffs on August 7... US-China Tariff Truce Expected
Tesla Rises 2% on Musk Stock Option Grant
The three major indices of the New York Stock Exchange opened higher on August 4 (local time). After the employment shock caused a sharp decline on the previous trading day, August 1, bargain hunters are entering the market, leading to a rebound. The contraction in employment is also fueling expectations of a key interest rate cut in September, which is supporting the upward trend.
As of 10:33 a.m. on the same day in the New York stock market, the blue-chip Dow Jones Industrial Average (Dow) was up 418.84 points (0.96%) at 44,007.42 compared to the previous trading day. The large-cap S&P 500 index rose 72.85 points (1.17%) to 6,310.86, while the tech-heavy Nasdaq index jumped 332.27 points (1.61%) to 20,982.4.
On the previous trading day, August 1, the market plummeted after the U.S. Department of Labor released a report showing a sharp slowdown in July employment. According to the report, nonfarm payrolls increased by only 73,000 in July, well below the market expectation of 106,000. Employment figures for May and June were also revised down to 19,000 and 14,000, respectively, from the previously announced 144,000 and 147,000. As a result, the average increase in nonfarm payrolls over the past three months remained at 35,000, a sharp decline from over 100,000 a year ago.
Due to these weak employment indicators, there are now assessments that President Donald Trump's trade policies have begun to have a significant impact on the overall labor market. Immediately after the release of the employment data, President Trump claimed the statistics were manipulated and abruptly dismissed Erica McEntaffer, the Commissioner of the Bureau of Labor Statistics.
Adam Crisafulli, a strategist at Vital Knowledge, said, "The market is rebounding after Friday's (August 1) employment slump," but added, "As investors face economic indicators pointing to stagflation (rising prices amid economic stagnation) and Q2 earnings that started strong but ended with mixed results, investor sentiment has visibly shifted over the past week." He continued, "Bulls have not been completely defeated and still hold the initiative in the market, but they need solid reasons to regain confidence."
Following the employment slowdown, the market now sees a high probability of a Federal Reserve interest rate cut in September. According to CME FedWatch, as of today, the probability that the Fed will cut the benchmark rate by 0.25 percentage points from the current 4.25?4.5% in September is 85.7%. This is more than 20 percentage points higher than the 63.1% probability a week ago.
Tariff policy is also drawing attention. President Trump is scheduled to implement reciprocal tariffs of 10?41% on major trading partners worldwide starting August 7. The United States and China have reached a tentative agreement to extend their previous deal to reduce reciprocal tariffs by 115 percentage points each for 90 days and are continuing follow-up negotiations. Currently, the United States imposes a 30% tariff on Chinese goods, and China imposes a 10% tariff on U.S. goods. These measures are set to expire on August 11.
Additionally, investors are awaiting corporate earnings announcements. After the market closes today, Palantir will report earnings, and on August 5, AMD is scheduled to announce its results.
U.S. Treasury yields are steady. The 10-year U.S. Treasury yield, the global bond benchmark, is at 4.22%, while the 2-year yield, which is sensitive to monetary policy, is at 3.7%, both unchanged from the previous trading day.
By stock, Tesla is up 1.98%. The board approved a stock option grant worth $29 billion (about 40 trillion won) to CEO Elon Musk, reflecting expectations that Musk will remain at the helm. Tyson Foods is up 4.18% after reporting results that exceeded market expectations. Spotify has surged 5.73% after announcing an increase in premium individual subscription fees in some markets.
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