Bad Jobs News Is Good Market News – Until It Isn’t

David Halseth
7 days ago
2 min read

For the week ended 8/8/26.

The July employment report delivered a genuine surprise – and not the pleasant kind. The U.S. economy lost 23,000 jobs last month, badly missing economists’ forecast for an 83,000 gain. As if that weren’t enough, May and June payroll growth was revised downward by a combined 103,000 jobs.

When economists miss, they occasionally miss with enthusiasm.

Oddly, the unemployment rate declined from 4.2% to 4.1%. Before celebrating, understand why: more Americans left the labor force altogether. Fewer people were working, but fewer were counted as actively looking for work. The unemployment rate improved mathematically, not economically.

Government layoffs pushed total employment into negative territory, but the private sector hardly covered itself in glory, adding just 30,000 jobs. Leisure and hospitality employers eliminated 40,000 positions, retailers cut more than 19,000, and education and healthcare – one of the economy’s most dependable hiring engines – added a relatively modest 25,000.

One notable bright spot was construction, which gained 22,000 jobs, likely reflecting the continuing data-center boom. Apparently, artificial intelligence may eventually replace some workers – but first, we need plenty of workers to build it a home.

Naturally, Wall Street celebrated.

The S&P 500 closed at a record Friday because the weak employment report reduced fears of a September interest-rate increase. Futures markets now place the odds of the Fed holding steady at 58%, compared with a 42% probability of a hike.

That shift pushed Treasury yields lower. The two-year yield, which closely tracks expectations for Fed policy, fell to 4.203%, while the benchmark 10-year yield declined to 4.657%.

This is the market’s familiar “bad news is good news” routine: weaker hiring means less pressure on the Federal Reserve to raise rates, lower yields make stocks more attractive, and equity investors cheer. It works beautifully – right up until the economic news becomes bad enough to affect corporate profits.

For the week, U.S. stocks surged 3.6%, followed by foreign shares at 1.6%. Thanks to declining Treasury yields, bonds even joined the party, gaining 0.6%. Commodities slipped 0.2% as the conflict with Iran paused – for the moment – and lower oil prices followed. Real estate declined 0.5%.

Despite the relentless negative headlines and daily market noise, all but one major asset class remains positive for 2026. Commodities, real estate and stocks are all up by double digits.

And the lone asset class still in the red?

Take a guess. It rhymes with “blondes.”

The larger issue is that the Fed now faces an increasingly uncomfortable combination: a weakening labor market alongside inflation that remains elevated. That is not yet stagflation, but it is certainly the neighborhood – and nobody should be eager to move in.

Good morning and have a productive week.