Bad news finally became good news again.
The July jobs report landed Friday morning with a number nobody was positioned for: nonfarm payrolls fell by 23,000, against expectations for a gain of roughly 80,000. Wall Street’s response was not fear but relief. The S&P 500 climbed to a record close and the Nasdaq Composite rose about 1%, capping the market’s best week since April, as traders concluded that a visibly cooling labor market removes the Federal Reserve’s justification for the rate hike it has been flirting with all summer.
The rally had a second engine. Reuters reported that a US official expects an Iran-Oman deal on the Strait of Hormuz soon — and that Washington will lift its naval blockade of Iranian ports once it is announced. Crude slid on the news, easing the oil-driven inflation pressure that had ended the Dow’s record streak just a day earlier. Softer jobs, softer oil, softer Fed: for one session, every macro variable pointed the same direction.
Index Performance
Rates, Dollar, Commodities
The July Jobs Report: Worse and Better Than It Looked
The headline was ugly, but the details were genuinely strange — and both facts matter.
Nonfarm payrolls declined by a seasonally adjusted 23,000 in July, badly missing the consensus for a gain of roughly 80,000. Worse, the revisions were brutal: June, initially reported as a 57,000 gain, was revised all the way down to a 20,000 decline, and May and June together were cut by a combined 103,000. Private payrolls rose just 30,000 against the 78,000 expected. Wage growth cooled sharply, with average hourly earnings up only 0.1% month-over-month versus 0.3% expected, and 3.2% year-over-year against a 3.5% forecast.
Yet the unemployment rate fell, to 4.1% from 4.2%. The explanation is the story within the story: the labor force participation rate slipped again to 61.4%, its lowest in more than five years, down 0.7 percentage points this year alone as nearly 1.4 million people have exited the workforce. As CNBC put it, the payroll decline wasn’t quite as bad as it looked and the drop in unemployment wasn’t nearly as good as it looked. The jobless rate is falling not because more people are finding work, but because fewer are looking for it.
For a market that has spent two months bracing against rate hikes, the ambiguity didn’t matter. What mattered was that the labor market — unexpectedly resilient through the first half — is now weakening faster than anyone forecast.
The Fed: September Comes Off the Table
The reaction in rate expectations was immediate and decisive. Markets took a September hike off the table entirely, reversing a probability that had stood near 67% just days earlier before Wednesday’s soft ADP print began the unwinding.
The move rippled everywhere. Gold jumped to a seven-week high, silver rallied, and the dollar was hammered as the prospect of tighter policy receded. It was a textbook rate-relief trade, and it lifted essentially every risk asset in its path — European indices included.
There is a counterargument worth holding onto. Fed policymakers, who have lately expressed considerable confidence in the labor market, may read the lower unemployment rate as evidence of stability rather than the payroll decline as evidence of weakness. The signal is not clean, and the committee that produced three hawkish dissents last week is unlikely to reverse course on one ambiguous report.
“Software Is Back”
Beneath the macro story, Friday delivered one of the strongest single-day showings for enterprise software in months — and the theme was unmistakable: AI is accelerating software spending, not cannibalizing it.
Atlassian was the headline act, surging roughly 32% after fourth-quarter revenue and adjusted earnings beat consensus and management guided above expectations. Doximity soared after beating first-quarter revenue estimates and raising its full-year outlook. Cloudflare climbed nearly 8% on a 4.5% revenue beat, a 38.1% earnings beat, and a raised annual forecast. Twilio jumped about 31%, and Airbnb added roughly 16%.
The healthcare complex joined in, with Natera up 18.4% after lifting full-year revenue guidance by about $100 million at the midpoint and processing a record 1,044,000 tests, and Halozyme rising 16.9% on 47.7% revenue growth. Coherent added 16.4% in a sixth consecutive advance — notably not an earnings story, since the optics maker doesn’t report until August 12, but a continuation of the rally sparked by reports that Washington may ban Chinese optical transceiver imports.
Not everyone participated. The Trade Desk tumbled more than 20% after disappointing second-quarter results and third-quarter revenue guidance that fell short of expectations.
The broader scorecard remains exceptional. Of the 436 S&P 500 companies that have reported, 85.1% have beaten estimates — dramatically above the 68% average since 1994. This has been one of the strongest earnings seasons on record, and it is the foundation beneath the summer’s volatility.
Hormuz: Washington Signals a Concession
The geopolitical news broke Friday afternoon and was substantial. A US official told Reuters that progress between Iran and Oman on the Strait of Hormuz had advanced and that “we expect a deal soon” — adding that once an agreement is announced to restore unimpeded commercial shipping, the United States will lift its blockade of Iranian ports, in place since April 13. The official emphasized that US actions would remain “performance-based and tied to Iran’s implementation of its commitments.”
Oil slid on the report, and the easing of the energy-inflation channel reinforced the day’s rate-relief theme. Treasury Secretary Scott Bessent, meanwhile, offered a striking longer-term framing: the strait, he argued, is never going back to what it was, and over the next two years it will become “irrelevant” as trade reroutes around a chokepoint Iran has demonstrated it will weaponize.
Over the Weekend: The Deal That Isn’t
Saturday complicated the picture considerably — and anyone trading Monday’s open should know it.
Iran said a deal with Oman was close but explicitly not sufficient to reopen the waterway. Foreign Minister Abbas Araqchi described the two sides as “very close” on a new shipping route, but the Revolutionary Guards — the force actually attacking ships — went further, stating that reopening depends on Washington accepting Iran’s conditions and is unrelated to the Iran-Oman track. “Whenever the United States accepts Iran’s conditions, the Strait of Hormuz will certainly be reopened,” said Guards spokesperson Hossein Mohebbi via Tasnim.
The terms, as described by Iran’s own parliament, are stiff. Lawmaker Ahmad Bakhshayesh Ardestani said with unusual candor that Iran is negotiating with America “in Oman’s name,” over an arrangement that would leave the strait’s management in Iranian hands and levy a tariff of 7% of cargo value — split three-quarters to Tehran, one-quarter to Muscat. US and Israeli vessels would remain barred until sanctions are lifted and compensation paid. Separately, the UAE said Iran struck another ship in the strait over the weekend, and the Wall Street Journal reported that Arab mediators doubt Iran’s negotiators even have the authority to deliver a deal they sign, with hardliners accusing them of conceding too much.
Also on Friday, Turkey, Saudi Arabia and Pakistan signed a joint defense agreement in Mecca — a pact whose statement avoided naming Iran, though Tehran responded anyway, dismissing it as a “paper agreement.” The regional realignment underway is a slower-burning story than the oil price, but a consequential one.
The gap between “we expect a deal soon” and “the strait reopens only when America accepts our conditions” is the entire trade. Friday priced the former.
Bottom Line
Friday was the cleanest risk-on session of the summer: a jobs shock that killed the rate-hike threat, an oil decline on Hormuz optimism, and a software earnings sweep that reminded investors AI is expanding enterprise spending rather than eating it. A record close and the best week since April are the deserved result.
But two cautions travel into next week. First, the jobs data is a double-edged instrument — today it’s rate relief, and if August confirms the trend, it becomes a slowdown story that pressures cyclicals and earnings estimates. The 1.4 million people who have left the labor force this year are not a sign of economic health, however flattering they make the unemployment rate look. Second, the weekend’s Hormuz developments substantially undercut Friday’s optimism; Iran’s Revolutionary Guards and its parliament are describing terms Washington has consistently refused to accept.
Adding a contrarian note, BofA’s Michael Hartnett is advising clients to rotate into defensives as his sell signal returns, and US equity funds already recorded outflows in the week to August 5. The macro tailwind from soft jobs data may be masking fragility building underneath. For now, the tape says record high. The details say be careful.
Leave a Reply