Stocks, Bonds, and the Dollar All Fall — U.S. Jobs Report Disappoints: Is a September Rate Cut Now Certain?

Stocks, Bonds, and the Dollar All Fall — U.S. Jobs Report Disappoints: Is a September Rate Cut Now Certain?

TradingKey - The U.S. July jobs report came in far weaker than expected, compounded by disappointing guidance from tech giant Amazon, sending U.S. stocks sharply lower on Friday. Investor bets on a Federal Reserve rate cut surged, with the probability of a September cut jumping to 80.5%, triggering a rally in bonds and a sharp sell-off in the dollar.

[Federal Funds Rate Probability for the September 17, 2025 FOMC Meeting, source: CME Group]

The U.S. economy added just 73,000 jobs in July, far below the expected 185,000 and marking the weakest gain in nearly three years. The unemployment rate edged up to 4.2%, in line with forecasts. More alarming, employment figures for the prior two months were significantly revised downward — a combined 258,000 fewer jobs — reducing the average monthly job growth over the past three months to a mere 35,000, shattering the narrative of a resilient labor market.

Job gains were largely concentrated in private education and health services (+79,000), while most other sectors showed weakness. Manufacturing employment declined for the third consecutive month, falling to its lowest level in three years. Notably, the unemployment rate for Black Americans rose to 7.2%, the highest since October 2021.

Markets reacted swiftly:

• Two-year Treasury yields plunged, briefly dipping to 3.76%.
• The Dollar Index dropped 1.24% in a single session.
• The S&P 500 opened down nearly 2%, the Nasdaq fell 1.4%, and the Dow declined 0.9%.

Tech stocks were hit hard, with Amazon dropping about 7%, wiping out $178 billion in market value, after issuing third-quarter profit guidance below expectations and reporting that its AWS cloud business is lagging behind rivals. Coinbase tumbled over 11%, reflecting a sharp drop in risk appetite.

The sudden deterioration in the labor market has forced investors to reassess the strength of the U.S. economic foundation. With growth stalling and momentum fading, the case for a Fed rate cut in September has become significantly stronger. The window for a policy pivot may now be opening — sooner than many anticipated.