Stocks didn’t just drift higher on Friday—they punched in fresh records within minutes of the bell. The catalyst was a labor readout that undershot already-dialed-down expectations: August nonfarm payrolls rose by only 22,000, and the unemployment rate climbed to 4.3%. In market shorthand, that’s a gentle “cooling” signal that keeps inflation pressures in check and nudges the Federal Reserve toward resuming cuts at its September 16–17 meeting. Equity traders responded by rotating back into duration-sensitive names, sending the S&P 500 and Nasdaq to new highs shortly after 9:30 a.m. ET.
Here’s why the tape moved the way it did. First, policy expectations matter more than the absolute payroll print. Futures quickly firmed around a 25-basis-point cut in September, with odds even opening a door to a larger 50-bp move should the Fed decide to front-load easing. Markets also penciled in the possibility that the policy rate could be roughly a percentage point lower by early 2026 if cuts continue at a steady cadence. That path compresses discount rates, mechanically lifting the present value of long-dated earnings streams and favoring growth-heavy benchmarks like the Nasdaq.
Second, an AI-anchored earnings story added a powerful micro driver. Broadcom—already a key supplier of custom silicon and networking gear for hyperscale AI—jumped after disclosing more than $10 billion in new AI infrastructure orders from a major customer and flagging “significant” AI revenue improvement in fiscal 2026. That announcement didn’t just pop one stock; it reinforced the idea that generative-AI capex remains a multi-year pillar for the semiconductor complex, even as some macro indicators soften. In a market primed to reward durable growth, that combination—policy relief plus a credible secular theme—was catalytic.
Third, rates cooperated. Treasury yields eased after the jobs data, extending a weeklong trend of calmer bond markets as growth cools and the Fed’s reaction function shifts. Lower yields reduce the equity risk premium headwind that plagued parts of 2024–25 and help justify higher multiples for cash-flow-rich tech names. The alignment across macro (jobs/fed-funds), micro (AI order books), and rates (yields slipping) created a textbook setup for record highs.
The fly in the ointment is the same one markets have lived with all year: how to calibrate between “not too hot” and “too cold.” A further slide in hiring or a sharper rise in joblessness could flip the narrative from benign disinflation to growth worry, undermining earnings assumptions outside AI-exposed leaders. For now, though, the balance of probabilities favors a measured Fed pivot and a still-resilient corporate sector, which is why investors were comfortable paying up for growth as the session got underway.
No comments:
Post a Comment