Disappointing jobs data and new tariffs shake US markets

United States (US) stock markets fell on Friday night as investors reacted to a weak July jobs report and a fresh round of tariffs announced by President Trump. For the week, the US 500 (S&P 500) fell 2.36%, its largest weekly decline since late March. The US Tech 100 (Nasdaq 100) dropped 2.19%, and Wall Street (Dow Jones) shed 1313 points, or 2.92%.

Participation rate decline tempers rising unemployment

The July employment report showed the US economy added only 73,000 jobs, below the 105,000 expected. The unemployment rate increased to 4.2% from 4.1%, as anticipated. The shock came from a significant downward revision to the previous two months, which reduced total jobs by 258,000 and lowered the three-month average payroll gain from 150,000 to just 35,000.

Furthermore, the rise in the unemployment rate to 4.2% was tempered by a decline in the participation rate to 62.2%. If the participation rate was still at 62.8%, as it was in November 2023, the unemployment rate would currently sit around 4.9%.

Political tensions heighten concerns

The grim jobs report marked the first clear evidence of sharp slowing in the hard data – likely due to uncertainty and slowing growth caused by President Trump’s tariffs. This was the impact feared back in April when markets moved sharply lower on concerns of a sharp economic slowdown..

The situation on Friday was further exacerbated when Trump dismissed the head of the Bureau of Labor Statistics, claiming the data was ‘rigged’, raising red flags about politicisation and the potential erosion of data integrity. Trump also criticised Federal Reserve (Fed) Chair Jerome Powell, warning him to ‘start cutting rates‘ or face consequences.

Rising rate cut expectations

Market reactions to Friday night’s events were swift and decisive. Equities and the US dollar tumbled, along with yields, which caused the odds of a 25 basis point (bp) Fed interest rate cut in September to rise to 95%, just a day after falling to 50% following the hawkish Federal Open Market Committee (FOMC) meeting.

Looking back, in 2024, the Fed kept rates on hold at its July meeting but delivered a 50 bp cut in September after a weaker-than-expected August jobs report. If upcoming labour market data surprises to the downside, there is a reasonable chance of history repeating itself in 2025.

Upcoming earnings and economic indicators

Looking ahead, aside from tariff headlines and digesting the implications of Friday night’s jobs report, second-quarter (Q2) 2025 earnings season continues this week with reports scheduled from Palantir, Pfizer, Caterpillar, Super Micro Computer, Rivian, Snap, McDonald’s, Disney, Airbnb, Uber, Dash, Lyft, and Under Armour.

There will also be interest in the Institute for Supply Management (ISM) services purchasing managers’ index (PMI), which is expected to rise slightly from 50.8 to around 51, signalling modest sector expansion.