U.S. stock markets are climbing as Fed rate cut expectations dominate investor sentiment. With weaker labor data and lower bond yields, Wall Street sees growing chances of the Federal Reserve easing policy at its September 16–17 meeting.
Markets Edge Higher on Easing Yields
The S&P 500 Index (NYSEARCA:SPY) gained +0.31%, the Dow Jones Industrial Average (NYSEARCA:DIA) rose +0.27%, and the Nasdaq 100 Index (NASDAQ:QQQ) advanced +0.28%. Futures tied to both the S&P and Nasdaq also posted modest gains.
The 10-year Treasury yield slipped to 4.17%, a four-month low, after the August ADP employment report showed weaker hiring. Weekly jobless claims also hit a 10-week high, reinforcing the view that the labor market is cooling. According to swaps markets, there is now a 95% probability of a Fed rate cut in September.
Labor Data and Productivity Drive Expectations
August ADP payrolls increased by just +54,000, below forecasts of +68,000. Jobless claims rose to 237,000, highlighting labor softness. However, U.S. productivity data surprised to the upside, revised up to +3.3% in Q2, while unit labor costs fell more than expected.
This combination of weaker hiring and stronger productivity is fueling optimism that the Fed can cut rates without igniting inflation. Federal funds futures also suggest a 53% chance of another -25 basis point cut at the October FOMC meeting.
Services Sector Shows Strength
While employment data shows weakness, the ISM services index offered a positive surprise, rising to 52.0 in August—the strongest reading in six months. The expansion suggests the economy retains some resilience even as the Fed prepares to ease policy.
Stock Movers React to Fed Signals
Several stocks rallied in response to Fed rate cut expectations:
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Homebuilders surged on lower mortgage rates, with PulteGroup (NYSE:PHM) and Toll Brothers (NYSE:TOL) up over +3%, while Lennar (NYSE:LEN) and D.R. Horton (NYSE:DHI) gained more than +2%.
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Amazon.com Inc. (NASDAQ:AMZN) rose +2% after reports the company is testing new AI-powered workspace tools.
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Hewlett Packard Enterprise (NYSE:HPE) gained +5% after posting stronger-than-expected quarterly revenue of $9.14 billion.
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T. Rowe Price Group (NASDAQ:TROW) jumped +5% after Goldman Sachs revealed plans to invest up to $1 billion and collaborate on private-market offerings.
Meanwhile, Texas Instruments (NASDAQ:TXN) slumped -5% after management warned chip demand is not rebounding as quickly as hoped. This weakness dragged other semiconductor names, including NXP Semiconductors (NASDAQ:NXPI), GlobalFoundries (NASDAQ:GFS), and Advanced Micro Devices (NASDAQ:AMD).
Health and Retail Under Pressure
Health insurers retreated after executives from Elevance Health (NYSE:ELV) suggested Medicaid margins will not improve this year. Shares of Centene Corp (NYSE:CNC) and Molina Healthcare (NYSE:MOH) also declined.
In retail, Caleres (NYSE:CAL) dropped -11% after reporting disappointing margins, while GitLab Inc. (NASDAQ:GTLB) lost -9% on a weak long-term revenue outlook.
Global Market Context
Overseas, sentiment was mixed. The Euro Stoxx 50 gained +0.31%, Japan’s Nikkei 225 jumped +1.53%, but China’s Shanghai Composite fell -1.25% to a two-week low. European bond yields also eased, with the German 10-year bund yield falling to 2.71%.
Looking Ahead
Investors now await Friday’s U.S. jobs report. Economists expect nonfarm payrolls to rise by +75,000, the unemployment rate to tick up to 4.3%, and wages to grow at +3.7% year-over-year.
If data confirms labor weakness, Fed rate cut expectations could strengthen further, fueling more upside for equities, especially in rate-sensitive sectors like housing and technology. However, stronger-than-expected numbers could temper enthusiasm and reintroduce volatility.
For investors, the next few weeks will be crucial. Earnings, inflation trends, and central bank guidance will shape market direction. Staying nimble and diversified remains the best strategy.
Long-term investors should also keep an eye on global developments, including trade policies, energy prices, and geopolitical risks. While Fed rate cut expectations dominate today’s narrative, broader economic shifts could still alter the outlook. Balancing optimism with caution will help investors navigate what could be an unpredictable close to 2025.
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