Dow climbs 256 points as weak jobs data eases Fed rate hike fears

The Dow Jones Industrial Average rose 256 points, or 0.49%, after a June payrolls report showed the U.S. added 57,000 jobs, half the 110,000 consensus estimate.

"This jobs report lets anyone concerned about an imminent Fed hike to breathe a sigh of relief," said Adam Sarhan, chief executive at 50 Park Investments. "It takes the pressure off the Fed to raise rates in the short term."

Private payrolls added 49,000 jobs in June, well below the 110,000 forecast, while the leisure and hospitality sector lost 61,000 positions — the largest monthly decline since December 2020. The ADP private payrolls report released a day earlier had shown a gain of 98,000, also below expectations. Healthcare added 22,000 jobs, a slowdown from the average monthly gain of 38,000 over the prior 12 months. Manufacturing added 3,000 jobs. Revisions subtracted a combined 74,000 jobs from the prior two months, with April's gain cut by 31,000 to 148,000 and May's reduced by 43,000 to 129,000. The unemployment rate fell to 4.2% from 4.3%, though the labor force participation rate dropped to 61.5% from 61.8%, and the labor force shrank by 720,000 people.

The data buys the Federal Reserve time. With inflation still elevated but the labor market cooling, traders pushed out expectations for the next rate hike. The yield on the 10-year Treasury note slipped 0.4 basis point to 4.471%, while the dollar index fell 0.66% to 100.74. Gold climbed 2.16% to $4,094.52 an ounce.

The S&P 500 E-mini futures contract rose 0.17%, signaling a broadly positive open for the broader market. Sector rotation reflected the shifting rate outlook. Rate-sensitive sectors including real estate and utilities led gains, while energy stocks declined alongside crude oil prices. WTI crude fell 1.5% to $68.98 a barrel, and Brent crude settled at $72.08, down 1.84%, as the weaker data raised demand concerns.

"The headline gain of 57,000 jobs is clearly disappointing, but it follows a familiar pattern," said Shawn Snyder, economic strategist at Potomac Fund Management. "This report alone is not enough to take a rate hike off the table, but it may be enough to push the timing out."

The VIX declined as the data reduced the probability of aggressive Fed tightening. The number of long-term unemployed held at 1.9 million, up 286,000 over the past year, accounting for 27.3% of all unemployed workers. The number of people working part-time for economic reasons stood at 4.7 million.

For investors, the report presents a scenario where the labor market is cooling enough to keep the Fed on hold but not so weak as to signal recession. "Bad news is maybe good news this morning," said Tim Holland, chief investment officer at Orion Advisor Solutions. "The soft jobs report makes any interest rate increase less likely and buys the Fed time."

Peter Cardillo, chief market economist at Spartan Capital Securities, called it a Goldilocks report. "It reinforces the notion that the Fed has to fight inflation, but not an overly heating jobs market," he said. "It buys time to hold off on raising interest rates at least in July."

The Federal Reserve's next policy meeting is scheduled for late July. Fed Chairman Kevin Warsh said Wednesday that the central bank remains data-dependent, keeping the door open for either a hike or a hold depending on incoming economic data.

This article is for informational purposes only and does not constitute investment advice.