29,000 Jobs. Hike Odds Collapsed

Wall Street got the jobs number it wanted Friday. Payrolls rose just 29,000 in September. Economists expected 90,000. Unemployment rose to 4.2%. The prior 2 months were revised lower by another 60,000 jobs.

October Fed hike odds fell to 22.7%. Stocks jumped. The Nasdaq surged 1.19% to a record close. The S&P 500 gained 0.73%. The Dow added 250 points.

But the bond market refused to give Wall Street full relief. The 10-year yield fell after the jobs report. Then it reversed. It finished at 5.285%. Weak jobs crushed the October hike trade. They did not solve the high-yield problem.

Friday, October 2

Friday came down to one number. 29,000. That was the September payroll gain. It missed the 90,000 forecast by 61,000. The prior 2 months were revised down by a combined 60,000 jobs.

Wage growth also slowed. That changed the Fed trade immediately. Another October hike went from a serious risk to a much less likely outcome. Stocks liked it. Small caps liked it. Rate-sensitive stocks liked it. But long-term Treasury yields did not stay down. That was the most important warning inside Friday’s rally. 

The U.S. added just 29,000 jobs in September. Economists expected 90,000. Unemployment rose from 4.1% to 4.2%. Average hourly earnings increased only 0.1% for the month. Annual wage growth slowed to 3.0%.

The labor force participation rate rose to 61.8%. The report clearly showed weaker hiring. But it did not show mass layoffs. First-time unemployment claims remain near multi-decade lows. That leaves the labor market in a different place.

Companies are not hiring much. But they are not firing heavily either. For the Fed, that makes another immediate hike harder to justify. 

The rate shift was huge. October hike odds fell to 22.7%. One week earlier, they were 64.2%. That is a decline of 41.5 percentage points. Only days earlier, markets were pricing another October increase as more likely than not. By Friday, a pause was the clear base case.

Softer inflation helped start that move. Cautious Fed comments helped. Friday’s weak jobs report pushed it much further. The Fed may still hike later. But October now looks very different. 

The Nasdaq jumped 1.19% to 27,190.86. That was a record close. The S&P 500 gained 0.73%. The Dow added 250.40 points, or 0.49%. This was not only a mega-cap move.

The Russell 2000 gained 0.9%, its best daily rise in a month. Real estate also gained 0.4%. Both groups are sensitive to borrowing costs. Lower odds of another immediate Fed hike gave them relief. Friday’s rally was broader than many of the tech-led moves seen earlier this month.

Tesla was one of the largest boosts to the S&P 500. Shares surged 4.7%. That helped consumer discretionary gain 1.4%, making it the strongest major S&P sector. Tesla is highly sensitive to interest rates.

Cars are often financed. High-growth stocks also tend to benefit when expected policy rates fall. Friday gave Tesla both. Less immediate Fed pressure. And a broad return to growth stocks. 

Nvidia added 1.3%. AI remained one of the market’s strongest supports. Lower Fed hike odds helped high-valued technology shares. But the bigger AI story has not changed. Companies are still spending heavily on chips, data centers and computing power.

That spending has helped keep the Nasdaq strong even while Treasury yields sit above 5%. Friday removed one near-term problem. It did not remove the long-term rate test. 

This was Friday’s most important warning. The 10-year yield fell immediately after the jobs report. Then it reversed. It finished around 5.285%, up roughly 5 basis points on the day.

That tells us the jobs report changed expectations for the next Fed meeting more than it changed the long-term bond story. Inflation remains above target. Oil remains above $100. Government borrowing is heavy. And investors still want high yields to own long-term Treasury debt. That is why Friday produced such a strange mix. October hike odds collapsed. Stocks surged. Yet the 10-year still closed near a multi-decade high. 

Oil moved lower Friday. Brent settled at $102.25. WTI fell to $91.11. European governments agreed to release emergency diesel stocks after fuel prices surged. That helped reduce some pressure in refined products.

WTI finished the week down about 1.6%. But crude remains expensive. Brent is still above $100. So oil remains a problem for the Fed’s inflation fight. Friday simply stopped that problem from getting worse. 

Nike fell 3.6%, making it the weakest stock in the Dow. The company warned of a steep drop in annual revenue. Demand in China remained weak.

Nike also announced job cuts and changes to its global structure. That move was important for a different reason. Lower Fed odds can help valuations. They cannot fix weak sales. Friday rewarded rate-sensitive stocks. It still punished weak company results. 

Western Digital and Seagate each fell roughly 10%. Reports said Toshiba plans to double production capacity for hard drives used in AI data centers by fiscal 2027.

More supply can mean more competition. More competition can mean lower prices. The selloff showed that simply being tied to AI is no longer enough. Investors still care about supply. They still care about margins. And they still care about who captures the profit. 

Friday was strong. The full week was mixed. The S&P 500 lost 0.27%. The Dow fell 1.26%. The Nasdaq gained 0.45%. The Nasdaq has now risen in 5 of the past 6 weeks.

That split tells us where the strength still sits. Large technology stocks remain strong. The broader market is more fragile. And every part of the market is still fighting Treasury yields above 5%. 

Friday left markets with a short list of hard numbers:

Friday changed the Fed trade. Payrolls rose just 29,000. October hike odds fell to 22.7%. The Nasdaq hit a record. Small caps rallied. Tesla jumped. But the 10-year still finished at 5.285%.

That is the key tension heading into the new week. The Fed may pause in October. The bond market is still demanding more than 5%. 29,000 jobs crushed the October hike trade. The 5% yield problem survived.