[New York Stock Exchange] Stocks Rally on Weakening Employment Data... S&P Hits Record High on Rate Cut Hopes

August ADP Private Employment Halved
Weekly New Jobless Claims Hit Highest Since June
Momentum Builds for Rate Cuts... 48% Odds of Three Cuts This Year
Key Focus on August Jobs Report Due on the 5th

All three major U.S. stock indices closed higher on September 4 (local time) in New York. Continued signs of a slowdown in the labor market have fueled expectations for interest rate cuts, boosting investor sentiment. U.S. Treasury yields also declined.

Reuters Yonhap News

On the New York Stock Exchange that day, the blue-chip Dow Jones Industrial Average rose by 350.06 points (0.77%) to close at 45,621.29. The S&P 500 Index, which focuses on large-cap stocks, climbed 53.82 points (0.83%) to 6,502.08, marking a new all-time high. The tech-heavy Nasdaq Index jumped 209.968 points (0.98%) to finish at 21,707.694.

Weak employment indicators released in the morning helped drive the market higher. According to U.S. private labor market research firm ADP, the private sector added 54,000 new jobs in August, falling short of the Dow Jones estimate of 75,000. This is only about half the figure from the previous month (106,000). In addition, the number of new unemployment claims for the week of August 24-30, as reported by the Department of Labor, reached 237,000, up by 8,000 from the previous week (229,000) and exceeding Bloomberg's estimate of 230,000. This is the highest level since June.

There were also indicators showing that companies are increasing layoffs and becoming more cautious about new hires. According to employment information firm Challenger, Gray & Christmas, the number of layoffs in August was 85,979, a 39% increase from the previous month and the highest since the peak of the COVID-19 pandemic in 2020. The cumulative number of layoffs this year reached 892,362, also the highest since 2020. In contrast, companies' plans for new hires in August stood at only 1,494, the lowest since 2009.

The previous day, the Department of Labor reported that job openings in July had fallen to 7,181,000, the lowest in 10 months, confirming the cooling trend in the labor market. Some analysts attribute the overall impact on employment to the aggressive tariff policies of the Donald Trump administration.

However, investors interpreted these developments not as a signal of recession, but rather as a move toward a "Goldilocks" phase-where the economy is neither overheating nor cooling too much-and continued to buy stocks.

Steve Sosnick, chief strategist at Interactive Brokers, commented, "Many investors clearly want a rate cut, but we need to carefully consider what we are wishing for. A gradual slowdown in the indicators, but not a severe labor market, aligns with the goal. However, if the indicators plunge, it could raise concerns that the central bank is falling too far behind."

Expectations for rate cuts have grown even stronger in the market. According to CME FedWatch, the federal funds rate futures market on this day reflected a 97.3% probability that the Federal Reserve would cut its current 4.25-4.5% rate by 0.25 percentage points in September. This is up from 90.4% a week ago. The probability that the Fed will cut rates at all three remaining meetings this year, for a total reduction of 0.75 percentage points, also rose to 48%, up from 37% a week earlier.

Chris Larkin, managing director at Morgan Stanley E*TRADE, said, "In the short term, the market can accept this data, which increases the likelihood of a Fed rate cut. However, if the numbers deteriorate too much, concerns about the health of the economy could grow."

Wall Street's attention is now focused on the August employment report to be released on September 5. Nonfarm payrolls are expected to increase slightly to 75,000, up from 73,000 in July. If this is the case, monthly growth will remain below 100,000 for four consecutive months, marking the weakest stretch since the height of the COVID-19 pandemic in 2020. The unemployment rate is also expected to edge up from 4.2% in July to 4.3% in August.

U.S. Treasury yields are on a downward trend. The yield on the benchmark 10-year Treasury note fell by 5 basis points (1bp = 0.01 percentage point) from the previous day to 4.16%. The yield on the 2-year Treasury note, which is sensitive to monetary policy, dropped 2 basis points to 3.58%. The 30-year Treasury yield, which surged earlier this week due to a court ruling on reciprocal tariffs and the possibility of tariff refunds under the Trump administration, fell 3 basis points from the previous day to 4.85%.

By stock, Salesforce plunged 4.88% after announcing a disappointing quarterly sales outlook. Tesla, which unveiled its robotaxi application, rose 1.36%. Nvidia gained 0.61%, while Apple and Microsoft rose 0.55% and 0.52%, respectively. Alphabet, which jumped more than 9% the previous day after avoiding a forced sale of its Chrome browser, continued to gain, rising 0.68%.