Surprise Jobs Drop Lifts Stocks as Hike Odds Fall

Published as of: August 7, 2026, 9:25 a.m. ET

(Friday market open) The economy unexpectedly lost 23,000 jobs last month, according to today's U.S. nonfarm payrolls report. It was the first monthly decline since February and could ignite concerns about the pace of economic growth, though unemployment fell to 4.1%. The government also downwardly revised combined May and June jobs growth by 103,000. Analysts had expected jobs growth of 86,000 and unemployment steady at 4.2%. Major indexes, which climbed before the report, initially held gains while Treasury yields declined as traders dialed back rate hike odds.

The report "should give the Fed more comfort in their decision to hold rates steady last week," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). The Federal Reserve's decision gets more complicated when inflation is high but the labor market might be softening, Martin added, noting the central bank will likely consider whether the economy can handle tighter policy when deciding if and when to hike. "With a stable labor market and high inflation, a hawkish pivot makes sense," Martin said. "This morning's report could keep those officials favoring a hold from moving to the 'hike' camp."

Yesterday, initial gains ran into selling, breaking a five-day win streak for the Dow Jones Industrial Average as investors watched crude oil and yields climb absent any confirmed resolution on Strait of Hormuz traffic. With nothing in place by late Thursday, patience among investors appeared to be running out. Trading volume was below average, possibly amid caution ahead of payrolls. Thursday's selloff was driven more by sharp single-stock earnings reactions than broad macro stress. Sector action was dismal as nine of 11 fell, but most rose over the last week and the market remains on pace for solid weekly gains.

1. Nonfarm payrolls deeper dive: The number of long-term unemployed, including those who've stopped seeking jobs and don't get counted in the official unemployment number, has been climbing lately, raising concerns. Today's report showed labor market participation dropping to 61.4%, down from 62.1% at the start of the year. "The unemployment rate fell, but not for good reasons," Martin said. "People are leaving the workforce." Heavy losses in government and retail jobs led the monthly overall drop, though health care employment extended its gains. Also, wages had a paltry month-over-month gain of 0.1%, below the 0.3% expected, pushing year-over-year wage growth to 3.2%, below the inflation rate. This could send negative signals about the consumer environment, weighing on earnings expectations down the road. With the labor market now showing obvious signs of stumbling, chances of a September Federal Reserve rate hike quickly descended to 42%, according to the CME FedWatch Tool, down from 54% before the jobs report. This appeared to underpin early trading on Wall Street and weigh on the dollar.
    
2. Fed hike not seen too painful: Before the jobs report, traders had seen around 50-50 odds of a September rate hike, which would be the first since 2023. Although the market stumbled when the Fed lifted rates to 5% in 2023, it landed on its feet and now appears used to rates that would have seemed lofty in the 2010s. Arguably, rates rising 25 or 50 basis points wouldn't significantly change the backdrop. Also, in past times of modest Fed tightening, the market generally responded well. "Historically, significant and aggressive tightening cycles or hikes of more than 25 basis points tend to be consistent with bull markets ending," said Kevin Gordon, head of macro research and strategy at SCFR, in recent comments on CNBC. "That's not the case with a couple of hikes, hikes that are spaced out, or ones that occur when the economy is still growing. Looking a year out from there, the markets have done well. As long as the economy is growing, the Fed isn't as big an enemy for the market as it could be."
    
3. Investors await earnings scorecard, watch Iran: Earnings slow Friday and the calendar next week is much lighter, though Cisco (CSCO) is among reporting firms. Investors await today's weekly earnings update from FactSet. Last week's estimate was a sky-high 47% year over year, a number heavily influenced by the booming chip sector. At the same time, events in the Middle East could set the tone today. A possible deal between Iran and Oman to allow passage through the Strait of Hormuz improved investor sentiment and lowered oil prices this week, though it's uncertain the U.S. will accept whatever terms get worked out. The U.S. is also again talking to Iran, and attacks have eased. With stocks near record highs, investors may lean toward selling risky assets if progress slows. "Investors remain cautious despite bullish positioning, as rotations curb speculation while record margin debt and high equity allocations raise longer-term risks," noted Gordon and Liz Ann Sonders, chief investment strategist at SCFR, in a look at sentiment. Bloomberg reported today that Iran may demand payment from "hostile countries" to use the strait or ban Israeli and U.S. vessels, something the U.S. might reject.

• Airbnb (ABNB) jumped 6% early as earnings topped expectations and the company delivered an upbeat forecast for its third quarter. Revenue climbed 17% annually.
   
• Instacart (CART) popped 16% ahead of the open after it topped analysts' second quarter estimates and signaled continued strength in the current quarter. The grocery delivery company is benefitting from consumers' search for value, Reuters reported.
   
• Akamai Technologies (AKAM) surged more than 8% after the software and cloud firm beat analysts' second quarter earnings estimates.
   
• Atlassian (TEAM) climbed almost 30% on an earnings beat. The workplace software developer also issued strong forecasts.
   
• Cloudflare (NET) surged 15% on strong earnings and guidance.
   
• Mining firms climbed this morning as gold rose more than 1% and silver jumped 4%. Newmont (NEM) jumped 4%. A weaker dollar has helped gold lately, while silver hit its highest mark since June as Treasury yields stepped back and inflation fears eased. Copper has also been on a roll, with Bloomberg reporting a possible supply crunch.
   
• Corning (GLW) surged 4% as the Trump administration imposed tariffs on polysilicon to encourage the "onshoring" of this industry. The material is a key semiconductor building block. Solar energy stocks including First Solar (FSLR) also rose on the news.
   
• SpaceX (SPCX) added 6% Thursday even as the market grappled with yesterday's expiration of a post-initial public offering (IPO) lock-up that freed more than 900 million shares valued at around $100 billion. Despite the stock's struggles, many early investors sit on large gains and may be tempted to sell, possibly one reason shares are down almost 50% since the IPO.
   
• Honeywell Aerospace (HONA), spun off from Honeywell Technologies (HON) in June, plunged 23% Thursday after its first standalone earnings report failed to impress.
   
• Cloud firm DataDog (DDOG) fell 19% Thursday after an earnings report and guidance that surpassed consensus on all fronts, suggesting much of the good news had been priced in.

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The PHLX Semiconductor Index (SOX—candlesticks) has recovered from recent lows and closed at 12,048.69 yesterday, but remains below its 50-day moving average (blue line). Moves above the 50-day in June ran into sellers, while a late-July slide below it found buyers. 

Check out the investors' calendar for a summary of the top economic events and earnings reports on tap this week.

August 10: Expected earnings from Barrick Mining (B), Rocket Lab (RKLB), Hims & Hers Health (HIMS), and Ferguson Enterprises (FERG).
August 11: July existing home sales and expected earnings from Cardinal Health (CAH), Lumentum (LITE), CoreWeave (CRWV), and Super Micro Computer (SMCI).
August 12: July Consumer Price Index (CPI) and core CPI, and expected earnings from Nebius Group (NBIS), Cisco (CSCO), and Cerebras Systems (CBRS).
August 13: July Producer Price Index (PPI) and core PPI and expected earnings from Brookfield (BN), NetEase (NTES), JD.com (JD), Tapestry (TPR), Applied Materials (AMAT), and Nu Holdings (NU).
August 14: University of Michigan preliminary August consumer sentiment.