S&P 500, TSX hit records as weak payrolls cut hike odds

Index	Close	Change
S&P 500	7,757.64	+0.62%
TSX Composite	36,381.23	+0.7%
Nasdaq	26,690.62	+1.30%
Dow	54,036.93	+0.28%

The S&P 500 rose 0.62% to 7,757.64 and the TSX gained 0.7% to 36,381.23, both record closes, after July payrolls unexpectedly fell 23,000.

"Bad news is good news in this case," said Allan Small, senior investment adviser at Allan Small Financial Group with iA Private Wealth. "U.S. is what's driving the market, so a weak number, which normally you would say is not good, but bad news is good news."

The materials group led the TSX, rising 4.7% as gold climbed to a seven-week high on reduced Fed rate-hike expectations. B2Gold Corp jumped 22.5% and IAMGOLD Corp rose 13.7% after both reported quarterly results. Real estate added 1.1%, with Altus Group surging 15.1% on higher-than-expected quarterly revenue. Financials fell 0.4% and energy lost 1.1% even as WTI crude settled 1.15% higher at $78.18 a barrel.

Market expectations for a Fed rate hike at the September meeting dropped to about 44%, down from 55% in the prior session and 67% a week ago, according to CME FedWatch. The data also showed 85.1% of the 436 S&P 500 companies that reported results through Friday beat analyst expectations, well above the 68% average since 1994.

Payrolls Miss Reshapes Rate Path

U.S. nonfarm payrolls decreased by 23,000 last month, far below the 80,000 consensus, while May and June figures were revised down by a combined 103,000. The unemployment rate came in at 4.1%, lower than the expected 4.2%, but the labor force participation rate fell to 61.4%, the lowest in more than five years — a sign more workers are leaving the workforce rather than finding jobs.

Canada's jobs report was more upbeat, with employment jumping by 75,100 positions and the jobless rate falling for the third consecutive month. Still, the data did not alter expectations for the Bank of Canada to hold its benchmark rate at 2.25% in September.

Under new Fed Chair Kevin Warsh, the U.S. central bank has offered investors little forward guidance on monetary policy, leaving market participants to focus on economic data and policymaker commentary. Signs of progress toward a potential peace deal in the Iran war have helped cool oil prices, easing inflation worries that could prompt a rate hike and pushing Treasury yields lower.

Earnings Season Delivers

A strong earnings season has tempered concerns about massive spending by AI-related companies, sending each of the three major U.S. indexes to their biggest weekly percentage gains since mid-April. The S&P 500 gained 3.58% for the week, the Nasdaq rose 5.19%, and the Dow climbed 2.96%.

Elon Musk's SpaceX surged 15.8% a day after the expiry of the first of several share lockup restrictions following its record public offering in June. Collaboration software maker Atlassian shot up 35.3% for its largest-ever daily percentage gain, while chip company Microchip Tech jumped 13.9%, its best daily performance in more than 15 months, after both forecast quarterly revenue above estimates.

Vacation rental company Airbnb rose 17.4% as the best performer on the S&P 500 after beating second-quarter revenue estimates. In contrast, Trade Desk plummeted 21.9% as the worst performer on the benchmark index after the ad-tech firm forecast third-quarter revenue below expectations.

Advancing issues outnumbered decliners by a 2.49-to-1 ratio on the New York Stock Exchange and by a 2.07-to-1 ratio on the Nasdaq. The S&P 500 posted nine new 52-week highs and one new low, while the Nasdaq recorded 123 new highs and 77 new lows. Volume on U.S. exchanges was 16.94 billion shares, compared with the 17.56 billion average over the last 20 trading days.

"You probably have to lower rates to stimulate job growth, but if you lower rates, you're going to also stimulate inflation. So you're kind of in a pickle at this point, and yet the market's just taken off because earnings have been stellar," said Tom Siomades, chief market economist at AE Wealth Management in Topeka, Kansas. "The market should be reacting to weak job numbers and higher inflation and the possibility of a slow-growth economy that may need to have rates raised rather than cut, and yet it's not. We're setting records, so go figure."

With the Fed's September meeting now the key near-term focus, traders will watch next week's CPI and PPI reports, due Wednesday and Thursday, for further signals on the inflation path. The Jackson Hole Economic Policy Symposium later this month could also shape expectations for the central bank's next move.

This article is for informational purposes only and does not constitute investment advice.