Investors Turn Attention from Trade Wars to Economic Reality as Jobs Data Disappoints

Stocks Slide as Weak Jobs Report Sparks Economic Worries

Markets pulled back sharply on Friday after a disappointing U.S. jobs report shifted investor focus away from trade tensions and toward a more pressing concern: whether the economy is actually strong enough to justify record-high stock prices.

For weeks, investors had treated tariff headlines as the main risk to markets. But with stocks climbing steadily despite escalating trade rhetoric, it’s now clear that tariffs were never the real driver. Friday’s reaction showed that investors may finally be waking up to a more fundamental risk—slowing economic growth.

Why Are Interest Rates Back in Focus?

The Labor Department reported just 73,000 jobs added in July, falling well short of forecasts for over 100,000. Even more concerning, previously reported gains in May and June were revised down by a combined 258,000. The weaker-than-expected numbers forced a reassessment of the job market’s true strength and raised doubts about the broader economy.

Stock indexes tumbled, with the Dow down 542 points (1.23%), the S&P 500 off 1.6%, and the Nasdaq losing 2.24%, marking the worst day in weeks for all three.

Bond markets moved swiftly in response, as investors bet the Federal Reserve would need to step in. The 10-year Treasury yield fell to 4.23%, its lowest in three months, while the 2-year yield dropped even more sharply.

Rate cut expectations surged—traders now see more than an 80% chance of a Fed cut in September, up from less than 40% the day before. Some analysts are even predicting a half-point cut rather than the standard quarter-point move. While lower rates could ease borrowing costs, they also signal growing anxiety about the economy’s direction.

Which Stocks Were Hit the Hardest?

Sector performance reinforced the shift in tone. Consumer and tech stocks—typically more sensitive to economic conditions—led the declines, falling 3.6% and 2.1% respectively.

On the flip side, utilities and other defensive sectors rose as investors looked for safer ground. The U.S. dollar also weakened by more than 1% against major currencies, reflecting the market’s view that interest rates are headed lower and making U.S. assets less attractive to global investors.

What Should Investors Watch Now?

More than just a reaction to weak data, Friday’s selloff revealed what had been hiding in plain sight: the market wasn’t rising in spite of tariffs—it was ignoring signs of a slowing economy.

With that blind spot exposed, investors may now place less weight on political noise and focus more closely on fundamentals.

Key indicators to watch in the coming weeks include inflation reports, consumer spending data, and any guidance from the Federal Reserve. As the focus shifts to economic health, portfolio positioning may need to follow.

More Information in our Economic Calendar.