The Numbers

In July, the United States added a more modest 187,000 new jobs, indicating a potential cooling of the economy. This could lead to a further decline in inflation and prevent any additional increases in interest rates. It is worth noting that employment growth has now dropped below 200,000 twice in the past three months, which is a first since 2019. On a positive note, the unemployment rate fell from 3.6% to 3.5% according to the government's report on Friday. This news prompted a rise in both stocks and bond yields.

The Big Picture

The question on everyone's mind is whether the Federal Reserve can successfully achieve a soft landing, something that has only occurred once or twice since World War Two. However, senior officials are increasingly confident that this feat is indeed possible. The Fed's economic staff recently revised their forecast and removed any mention of an upcoming recession. Additionally, the majority of Wall Street economists now agree that a downturn in the next year is highly unlikely.

However, despite these positive indicators, the economy is still not completely out of danger. Interest rates have been raised to levels not seen in decades, and certain sectors of the economy are already experiencing difficulties. If measures to reduce inflation lose momentum and rates continue to rise, the economy will become more vulnerable to a potential recession.

Market Reaction

Prior to the release of the jobs report, both the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) were expected to open with mixed results in Friday's trades. Following the report, the yield on the 10-year Treasury (BX:TMUBMUSD10Y) rose to 4.19%.