On the 4th (local time), all three major indexes in the New York stock market closed higher. In particular, the Standard & Poor's (S&P) 500 index set a new record high in terms of closing.
As signals indicating a cooling U.S. labor market continued to emerge, expectations grew that the Federal Reserve (Fed) would lower interest rates this month. The 'bad news' appeared to work as 'good news' for the market.
On that day, the Dow Jones Industrial Average on the New York Stock Exchange (NYSE) closed at 40,621.29, up 350.06 points (0.77%) from the previous day.
The large-cap S&P 500 index closed up 0.83% at 6,502.08, breaking its all-time record once again. This marks the 21st new high this year. The technology-focused Nasdaq Composite Index also closed up 0.98% at 21,707.69.
Employment-related indicators released that day fell short of market expectations, stimulating investor sentiment. According to the ADP National Employment Report, private sector employment in August rose by 54,000 jobs, significantly below the market forecast of 75,000 jobs. Weekly new unemployment insurance claims also totaled 237,000, higher than expected.
As the slowdown in the labor market became apparent, the market began to see a high likelihood of a Fed interest rate cut. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market reflected a 97% probability of a 0.25-percentage-point rate cut at the September Federal Open Market Committee (FOMC) meeting.
In particular, big tech stocks led the stock market rise. Amazon's stock price surged over 4% on expectations of benefits from strengthened ties with AI startup Anthropic.
On the other hand, some stocks showed poor performance. Software corporation Salesforce's stock price dropped as its Q3 earnings outlook fell short of market expectations. Clothing company American Eagle's stock surged after unexpectedly strong earnings, illustrating a divergence in stock performances.
However, the robust service sector performance could act as a variable when the Fed decides on interest rate cuts in the future. The Institute for Supply Management (ISM) announced that the August Services Purchasing Managers' Index (PMI) was 52.0, surpassing market expectations of 50.8, indicating continued expansion.
The market views the employment indicators as the key to determining the Fed's monetary policy direction. Jamie Cox, managing partner at Harris Financial Group, noted, 'The Fed's 'free pass' on the labor market is over' and added, 'It can be anticipated that the Fed will lean towards a rate cut in September.'
Chris Larkin of E*TRADE under Morgan Stanley said, 'In the short term, the market may welcome data that increases the likelihood of a rate cut' but pointed out, 'If the figures worsen too much, it could raise concerns about economic health.'