Goodbye, rate hike: Why stocks are soaring after a dismal jobs report

The latest jobs data may have kicked the can down the road when it comes to the next rate hike from the Fed.

Markets were in bad news is good news mode on Friday after a softer-than-expected September jobs report. The economy added 29,000 jobs, badly missing expectations for around 90,000 jobs added, while the unemployment rate unexpectedly ticked up from 4.1% to 4.2%.

It sounds like a negative print, until one considers the mental calculus investors have been doing since the Fed jumpstarted its rate-hiking cycle this year. A softer job market suggests the central bank might not have room to rush to raise rates, which is good for risk-asset prices.

Combined with a benign personal consumption expenditures reading on Wednesday, the latest jobs data has led traders to swiftly reprice rate expectations, with bond yields dropping sharply on Friday while US stocks rallied.

Markets are now pricing in an 83% probability that the Fed will keep rates on hold at their October policy meeting, according to the CMEFedWatch tool. The odds that the Fed will keep rates unchanged through the end of the year also rose to 25%, up from 7% last week.

The benchmark 10-year US Treasury yield fell as much as 6 basis points to 5.17% as investors digested the data. The 2-year Treasury yield, which is most closely tied to Fed rate expectations, also dropped as much as 6 basis points to 4.72%

Major stock indexes rallied, recouping some of the losses in the past week as the spike in yields spooked investors. The Dow Jones Industrial Average soared 500 points, while the tech-heavy Nasdaq rose more than 1%.

Here’s where US index futures stood around 10 a.m. ET:

Investors eagerly piled into tech stocks. The sector, which has masked broader weakness in the market lately, has churned higher amid the increased optimism for AI agents and ongoing excitement for big IPOs from AI titans like Anthropic and OpenAI.

Here were some of the notable moves on Friday:

“There is zero chance for a rate hike in October now—in retrospect, September should have been a hold. Outside of energy, the inflation impulse is lower, and Fed was zigging when it should have been zagging,” Jamie Cox, a managing partner at Harris Financial Group, said in a note.

“A softer-than-expected jobs report should put an October Fed hike firmly on the back foot,” Seema Shah, the chief global strategist at Principal Asset Management, said. “That should take some steam out of Treasury yields and reduce the urgency for the Fed to act.”

Investors are now looking ahead to September’s consumer inflation report on October 14, the next key datapoint for the Fed as it decides the path of monetary policy through the rest of the year.

“This report strengthens the case for the Federal Reserve to remain patient. The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data,” Adam Schickling, a senior economist at Vanguard, said.

The economic data has been mixed recently. Prior to the cooler jobs data, bond yields surged last week partly due data pointing to strong US growth, with business growth having expanded at its fastest pace in over five years last month, according to S&P Global.