29,000 Jobs and a Wall Street Rally: September’s Cool Report Kills the Fed’s Rate-Hike Threat

Wall Street got exactly the kind of bad news it likes on Friday.

The U.S. economy added just 29,000 jobs in September, the Labor Department reported Friday, far fewer than the roughly 85,000 economists had expected and a sharp slowdown from the 133,000 jobs employers added in August. The unemployment rate ticked up to 4.2 percent.

Investors didn’t mourn the miss — they celebrated it. The S&P 500 rose 0.7 percent, gaining 56.27 points to close at 7,722.72 and pulling within 1 percent of the record it set in August. The Dow Jones Industrial Average added 227 points, or 0.4 percent, and the Nasdaq composite surged 1.2 percent. It was a textbook “bad news is good news” session: a cooler labor market tamps down fears that an overheated economy could send inflation — already much worse than anyone would like — even higher.

The Federal Reserve recently raised its main interest rate for the first time in three years to rein in the painful increases in the cost of living. A too-hot economy would give it reason to keep going. Friday’s report gave traders reason to think the Fed can wait. Bets that the central bank will hike again at its October 28 meeting collapsed: traders now see only about a 20 percent chance, down from 64 percent a week ago, according to CME Group data. “This report strengthens the case for the Federal Reserve to remain patient,” Vanguard senior economist Adam Schickling said. “The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data.”

Small caps and chips joined the party. The Russell 2000 rose 0.9 percent, and semiconductor stocks — the beating heart of the AI trade — climbed about 2 percent, with gains across Nvidia, Micron and Advanced Micro Devices. Retail sentiment on Stocktwits turned decisively bullish on the major index ETFs, with message volumes running high.

The bond market was less convinced. The benchmark 10-year Treasury yield dropped below 5.17 percent on the jobs release, then bounced to settle at 5.28 percent, while the 30-year yield hit its highest level since 2002 — a reminder that stubborn federal deficits and energy-supply worries haven’t gone anywhere. For the week, the Dow fell 1.26 percent, the S&P 500 lost 0.27 percent and the Nasdaq climbed 0.45 percent. European stocks joined Friday’s rebound, with the STOXX Europe 600 rising 0.75 percent and Germany’s DAX up 1.12 percent.

The report caps a week of mixed signals. Earlier this week, the government said the economy’s spring growth was better than first estimated, driven by businesses building AI data centers and resilient consumer spending. Brent crude hovered near $100 a barrel as Gulf-war supply fears kept energy prices elevated. And the calendar ahead is busy: September services data on Monday, minutes from the Fed’s September meeting on Wednesday, weekly jobless claims Thursday and the University of Michigan’s consumer sentiment survey on Friday.

For households still squeezed by high prices, the stakes are straightforward: a labor market that cools without breaking gives the Fed room to hold still — and keeps the rate-hike threat at bay. Friday’s rally was Wall Street’s way of betting that’s exactly what happens. But one tension stays unresolved: inflation is still running far too hot, and a single report doesn’t make a trend. The data between now and October 28 will decide whether the pause holds.