Why Did Wall Street Rally Despite Weak U.S. July Nonfarm Payrolls? Fed Rate-Hike Expectations Cool as Tech Stocks and Gold Surge

The latest U.S. July nonfarm payrolls report came in unexpectedly weak. While the data would normally be viewed as a warning sign of economic cooling, it instead boosted Wall Street’s appetite for risk. The market’s interpretation is straightforward: a softer labor market could reduce the need for the Federal Reserve (Fed) to raise rates further, shifting interest-rate expectations in a more dovish direction and supporting technology stocks, gold, and major U.S. equity indexes.

According to market data, U.S. nonfarm payrolls declined by approximately 23,000 in July, sharply diverging from expectations for an increase of around 80,000. Breaking down the figures by sector, government employment was particularly weak, falling by roughly 53,000 jobs. Private-sector employment rose by about 30,000 jobs, but this was still well below market expectations of 78,000.

The report was not only weak on the headline level; its details also pointed to slowing momentum in the labor market.

Weaker Employment Data: Why a Lower Unemployment Rate May Not Be Good News

The U.S. unemployment rate fell from 4.2% to 4.1%, which may initially appear to be an improvement. However, the decline was not driven by a strong expansion in hiring, but rather by a shrinking labor force.

Data showed that the labor force declined by approximately 264,000 people, while the labor-force participation rate dropped to 61.4%, its lowest level since early 2021. This suggests that some workers exited the job market, causing the unemployment rate to decline statistically without necessarily signaling strong demand for hiring.

In addition, May and June nonfarm payroll figures were revised down by a combined 103,000 jobs, prompting the market to reassess the employment trend of recent months. Once these revisions are taken into account, the labor market has been substantially weaker over the past three months than investors had previously believed.

Wage growth also showed signs of cooling. Average hourly earnings rose about 3.2% year on year, one of the slowest growth rates since 2021. For the Fed, slower wage growth may help reduce the risk of persistently elevated services inflation, easing market concerns about further monetary tightening.

Bad Economic News Becomes Good News: Markets Cut Fed Rate-Hike Odds

The market’s reaction may look like a classic case of “bad economic news is good news for stocks,” but it is ultimately a repricing of interest-rate expectations.

Following the employment report, traders lowered the probability of another Fed rate hike in September. According to the CME FedWatch Tool, the market-implied probability of a September rate hike dropped from around 58% to 42%.

When expectations for rate hikes decline, several chain reactions typically follow:

- U.S. Treasury yields move lower

- The U.S. dollar weakens

- Valuation pressure on long-duration assets eases

- Growth-oriented technology stocks become more attractive

- Non-yielding assets such as gold receive support

This helps explain why technology stocks and gold performed strongly after the nonfarm payroll release. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, gained approximately 3.5% for the week, marking its best weekly performance since mid-April. Meanwhile, the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100, rose about 4.8%, its strongest weekly gain since early May.

Gold also moved sharply higher. Prices rose around 2.4% in one session, briefly reaching US$4,347.70 per ounce, a seven-week high. Gold gained approximately 7.5% for the week, its strongest weekly performance in seven months.

Technology and AI Stocks Lead the Rally as Earnings Results Diverge

Beyond the shift in rate expectations, earnings results further widened the performance gap between individual stocks.

Photonics components manufacturer Coherent (COHR) became one of the market’s key highlights, gaining approximately 43.5% over five trading days. The company supplies optical components used in AI chips and high-speed data transmission. Its rally was supported by growing demand for AI infrastructure, favorable peer earnings, and reports that the United States may tighten export restrictions on optical transceivers to China.

In addition, JPMorgan raised Coherent’s price target from US$380 to US$435, reinforcing market confidence. With the company’s earnings report approaching, investors will be watching closely for growth in its AI, data-center, and optical communications businesses.

Palantir (PLTR) also posted standout results. Its second-quarter revenue rose approximately 93% year on year to US$1.94 billion, while U.S. commercial revenue surged 149%. The company also raised its full-year revenue guidance to roughly US$8.15 billion, helping drive a near 29% single-day gain in its share price.

Another positive surprise came from Zebra Technologies (ZBRA). The company reported adjusted earnings per share of US$6.35, well above the market expectation of US$4.36. Revenue grew approximately 20.4% year on year, and management also raised its full-year earnings outlook. As the company operates in barcode scanning, logistics management, and warehouse automation, its results also suggest that demand for corporate digitalization and supply-chain automation remains resilient.

Weak Guidance Faces Little Forgiveness From Markets

On the other hand, even companies with reasonably solid earnings can face steep selling pressure if their forward guidance falls short of market expectations.

Advertising technology company The Trade Desk (TTD) is a clear example. Although revenue continued to grow, its third-quarter revenue guidance of approximately US$650 million was far below market expectations of US$805 million. Combined with the company’s announcement of changes to its chief financial officer, chief marketing officer, and chief commercial officer roles, investors became concerned about its future growth pace. As a result, the company lost around one-quarter of its market capitalization in a single week.

Honeywell Aerospace (HONA), meanwhile, lowered its full-year organic revenue growth forecast in its first earnings report after becoming independently listed. Its guidance was cut from 7%–9% to 4%–5%, placing similar pressure on the stock.

Kidney dialysis provider DaVita (DVA) reported earnings that exceeded expectations, but the company only maintained its existing guidance rather than raising its full-year outlook. Since investors had expected a stronger forecast, the stock still declined by approximately 17%.

These cases highlight that U.S. equities are currently operating in an environment of both elevated valuations and high expectations. Investors are not merely focused on whether companies beat earnings estimates; they are also closely watching whether management can deliver growth guidance strong enough to justify future valuations.

This Week’s CPI Will Be the Market’s Next Major Catalyst

Following the nonfarm payroll report, market attention will shift to the upcoming U.S. July Consumer Price Index (CPI) report.

Markets currently expect headline inflation to ease from 3.5% to 3.4% year on year, while core CPI is forecast to slow from 2.6% to 2.5%. If the inflation data meets or comes in below expectations, it could further strengthen bets that the Fed will pause rate hikes or even pivot toward a more accommodative policy stance.

Under this scenario, rate-sensitive assets—such as gold , the Nasdaq-100 , U.S. technology stocks, and small-cap equities—could continue to receive support.

However, if CPI comes in hotter than expected, markets may reassess inflation risks and the probability of further Fed rate hikes. This could lead to a rebound in Treasury yields and the U.S. dollar, potentially triggering short-term profit-taking in the technology stocks and gold that led this week’s rally.

In addition, semiconductor equipment giant Applied Materials (AMAT) is set to report earnings soon. Its outlook for AI chip investment, semiconductor-fab capital spending, and broader chip-industry demand will be an important factor in determining whether the technology rally can continue.

Conclusion: Nonfarm Payrolls Sparked a Short-Term Rally, but CPI Is the Next Test

Weak nonfarm payroll data has delivered a short-term boost by cooling rate-hike expectations and driving a strong rebound in technology stocks and gold. However, it remains unclear whether the cooling labor market represents a “soft landing” with inflation under control, or the beginning of a more pronounced economic slowdown. Upcoming CPI data, retail sales figures, and corporate earnings reports will be needed to provide further confirmation.

For traders, nonfarm payrolls, CPI releases, Fed rate decisions, and major technology earnings are all high-volatility events that can quickly shift market direction. As capital rotates between indexes, gold, the U.S. dollar, and individual U.S. equities, risk management and timely market analysis become increasingly important.

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