Jobs Report Flips the Script
August 10, 2026
The narrative shifted last week. Friday's July employment report showed the U.S. economy unexpectedly lost 23,000 jobs, versus consensus expectations for an 80,000 gain.1 The two prior months were also revised lower, erasing a combined 103,000 jobs.2 The unemployment rate edged down to 4.1%, though only because the labor force participation rate fell to 61.4%,3 its lowest level in more than five years.4 The report reframed the debate almost instantly: a majority of fed funds futures traders now expect the Federal Reserve (Fed) to hold rates at 3.50%–3.75% in September, whereas at the start of the week markets were pricing a 64% chance of a quarter-point hike.5
The bad news was good news as the S&P 500 Index closed at a record high on Friday, capping a 3.6% weekly gain—its best week since April—while the Nasdaq Composite Index surged 5.2% on a rebound in chip and software stocks.6 Earnings provided additional fuel, with a strong report from Caterpillar and upbeat software prints from Atlassian, Airbnb and Cloudflare easing fears that artificial intelligence (AI) would disrupt the software industry.7,8 Oil moved in the other direction, with West Texas Intermediate crude falling nearly 8% as the U.S. and Iran moved toward a deal to halt strikes and reopen the Strait of Hormuz—a constructive development for the inflation outlook.9
The weak labor data pulled Treasury yields lower on Friday, with the 10-year yield settling near 4.65%, about nine basis points lower on the week.10 The softer employment picture takes some pressure off the front end and undercuts the case for near-term tightening, but it does not fully resolve the Fed's dilemma. Encouragingly, the Institute for Supply Management (ISM) Prices Paid index eased to 71.1 from 73.0, offering a modest signal that price pressures may be cresting.11 Credit spreads remained well behaved despite the continued large corporate issuance, including $25 billion from Alphabet.12
In the week ahead, inflation returns to center stage. July Consumer Price Index (CPI) on Wednesday is the key event for Treasury rates, following June's 0.4% monthly decline, with Producer Price Index (PPI) on Thursday and both retail sales and University of Michigan consumer sentiment on Friday.13 These readings capture the period after the U.S.-Iran ceasefire collapsed, so markets will watch closely for any energy-driven reacceleration. Earnings continue with reports from Super Micro Computer, CoreWeave and Applied Materials.14 For fixed-income investors, the central question is whether a cooling labor market and improving inflation can align to keep the Fed on hold—shifting the conversation, for the first time in months, back toward eventual rate cuts rather than hikes.
Sources:
1-3,5,10Bloomberg
4,6,8CNBC – S&P 500 rises to record close Friday and posts strongest week since April; 8/7/26
7,9,11TritonPoint Wealth – Market Recap; 8/7/26
12JPMorgan
13MarketWatch – Economic Calendar; as of August 10, 2026
14Kiplinger – Earnings Calendar and Analysis for This Week (August 10-14)
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