WASHINGTON, D.C. — The Nasdaq Composite surged to a record high on Friday, driven by a sharp drop in Wall Street bets that the Federal Reserve will continue hiking interest rates. Investors reacted positively to a significantly weaker-than-expected US jobs report, which suggested the labor market is cooling faster than anticipated.

The Department of Labor reported that the US economy added only 29,000 nonfarm payrolls in September, a figure far below the 164,000 average forecast by economists. This marked the slowest job growth since April 2020 and signaled potential softness in consumer spending. Consequently, the three-month average job creation rate fell to 136,000, raising concerns about an impending labor market correction.

Market sentiment shifted rapidly as traders priced in a higher probability of rate cuts or a pause in monetary tightening. The decline in inflation data, coupled with this weak employment figure, strengthened the argument that the Federal Reserve has accomplished its mission of bringing inflation down to its 2% target. Bond yields fell, with the 10-year Treasury yield dropping significantly as the safe-haven bid intensified.

Key Takeaways

• The Nasdaq Composite rose 1.5% to close at a new all-time high of 18,200 points, outperforming the broader market indices.
• September nonfarm payrolls rose by just 29,000, missing consensus estimates by more than 135,000 jobs and indicating decelerating economic momentum.
• Futures markets now price in a 75% chance of a 25 basis point rate cut at the upcoming Federal Reserve meeting, up from 40% before the data release.

“The labor market is clearly cooling, and this data does not support aggressive tightening,” said Sarah Jenkins, chief economist at Meridian Capital. “We expect the Fed to maintain its current stance for at least one more quarter to allow the full effects of previous rate hikes to permeate the economy. For investors, this is a green light for growth-oriented equities.”

The contrast with other regional economies remains stark. While the US data suggests a soft landing, core inflation in the eurozone inched up last month. Inflation excluding energy, food, alcohol, and tobacco rose to 2.5% in September, up from 2.4% in August. This divergence complicates the global monetary outlook, as the European Central Bank may need to maintain a hawkish posture despite the US pivot toward dovishness. Global investors are now closely watching how divergent monetary policies will impact capital flows and currency valuations in the coming months.

Analysts caution that while the stock market rally is justified by the reduced threat of recession, the underlying economic risks are not disappearing. A slowdown in hiring could eventually lead to higher unemployment, which would dampen consumer confidence. Nevertheless, the immediate reaction in equity markets reflects a consensus that the worst of the inflationary pressure has passed, allowing for a sustainable recovery in corporate earnings.