S&P500: Fed Likely to Hold as Market Rallies on Jobs Strength

Stocks Climb as Solid Jobs Report Reinforces Fed Pause Outlook

U.S. stock futures jumped Friday after the May jobs report exceeded expectations, easing recession worries and reinforcing the case for the Federal Reserve to maintain current interest rates. The S&P 500 futures rose 0.8%, while the Dow Jones Industrial Average futures gained 296 points (0.7%). Nasdaq-100 futures advanced 0.9% as traders absorbed the fresh labor market data.

Nonfarm payrolls increased by 139,000 in May, outpacing the Dow Jones forecast of 125,000, although slightly below April’s downwardly revised 147,000 gain. The unemployment rate remained steady at 4.2%, offering reassurance that hiring remains resilient even as recent data showed signs of broader economic softening.

What Does the Jobs Report Mean for the Federal Reserve?

The stronger-than-expected payrolls number suggests the labor market isn’t cooling as fast as some feared, potentially giving the Fed reason to hold interest rates steady at its upcoming June meeting. Fed funds futures now reflect over a 97% probability that policymakers will leave the benchmark rate unchanged. This aligns with recent comments from Fed officials highlighting a cautious stance amid persistent inflation pressures.

However, the broader data picture remains mixed. Weekly jobless claims came in above forecast at 247,000, and private payrolls posted just a 37,000 gain in May, well below expectations. Additionally, the ISM services index dropped to 49.9—just under the 50 level that separates expansion from contraction.

Indexes Eye Weekly Gains Despite Tech Turmoil

The S&P 500 and Dow are holding modest weekly gains, up 0.5% and 0.1%, respectively, while the Nasdaq has risen nearly 1%. Thursday’s session saw declines across all major indexes, led by a 14% plunge in Tesla shares after CEO Elon Musk’s online clash with President Trump. Tesla rebounded by nearly 5% in premarket trade.

Which Stocks Are Moving on Earnings and Guidance?

Lululemon dropped nearly 20% after slashing its earnings outlook, with Q2 EPS now projected between $2.85 and $2.90, missing the $3.29 analyst consensus.

DocuSign fell 19% despite a strong quarter, as weak billings guidance disappointed.

Circle soared 14% following its NYSE debut, while Broadcom slipped 2% after reporting weaker-than-expected free cash flow.

Braze and Samsara also declined on soft outlooks, while Rubrik climbed 4% after beating on both earnings and revenue.

Are Treasury Yields Signaling Rate Stability?

Treasury yields edged higher following the jobs data, with the 10-year rising to 4.47% and the 2-year nearing 4%. The upward move reflects shifting expectations that the Fed will remain cautious rather than pivot to cuts soon.

Market Outlook: Eyes on Inflation, Fed Communication

Friday’s jobs report helps validate expectations that the Fed will stay on hold at its next meeting. With inflation still sticky and recent economic data mixed, traders will closely watch next week’s CPI report and FOMC press conference for clues on rate policy heading into the second half of the year. For now, steady employment gives markets some breathing room.

More Information in our Economic Calendar.