What Friday’s Bad Jobs Report Means for Markets
I noted in past commentaries that the biggest near-term risk to this market was excessive complacency towards tariffs and their potential impact on the economy. That turned out to be good timing as Friday’s jobs report implied that the labor market is slowing more than expected, while the tariff declarations reminded investors that tariff rates will settle near 100-year highs (and that will impact the economy and inflation).
But while Friday’s jobs report was a jolt, I do want to make sure you understand it in the proper context. First, the jobs report was a major disappointment, but job adds are still positive, so it’s not signaling any sort of recession or slowdown. Second, of all the economic reports, the jobs report is the most “inaccurate.” It’s prone to massive revisions (as we’ve seen) and can offer diverging signals between the Establishment and Household surveys and have extreme seasonal volatility (usually in August/September, so right on cue).
Importantly, no other labor market indicators are flashing a warning sign (no claims or JOLTS) and other economic metrics are stable, so the jobs report is not warning of a slowdown.
Regarding Friday’s tariff announcements, they were largely in line with expectations. In fact, the only countries who saw “worse” tariff rates than expected were Canada and Switzerland, and negotiations are ongoing. The point is that the negative decline wasn’t due to actual new negatives; it was just a case of the headlines causing a more poignant reaction.
The bottom line here is that neither the jobs report nor the tariff announcements should lead us to think anything is worse than we thought it was on Thursday. The problem, however, is that at 6,350, the S&P 500 gave zero room for disappointment, even if it’s just on the surface. That’s why stocks dropped on Friday: not because the news was much worse than we expected, but instead because it reminded the markets that it is possible that tariffs and policy volatility damage economic growth.
Looking forward, the next key number is Tuesday’s ISM Services PMI (This is a monthly economic indicator that assesses the health of the US services sector). If it’s much weaker than expected and drops below 50, look for economic anxiety to rise and stocks to fall further. If it’s stable above 50, economic concerns will ease. Beyond that, we all need to continue to watch economic data very closely because if investors get nervous about growth, this market will drop further (possibly much further if recession fears rise).
From a positioning standpoint, Friday partially snapped the market back towards a “Recession Paranoia” trading pattern where defensive sectors outperformed (utilities/staples/healthcare all rallied on Friday). One report won’t create a sustainable trend in those sectors, but it is a reminder of what will work if economic data begins to more forcefully roll over (and while I’m not advocating overweights in those sectors, it probably helps to check allocations. We continue to invest with a defensive attitude, with value stocks and bonds as a hedge.
According to FactSet Research, as of last week, 34 percent of S&P 500 companies reported results for the second quarter of 2025. Of those, 80 percent reported earnings surprises to the upside (three percent lower than the previous week), while 80 percent beat revenue expectations (also three percent lower than the previous week). The overall blended earnings growth rate for the S&P 500 stood at 6.4 percent last week (half of a percent improvement over the previous week), ahead of the 4.9 percent that was expected at the end of June. If these numbers continue to show that corporate America is healthy and thriving, then the markets will move strongly up to the end of the year.