The S&P 500 closed at a record high with 85.1% of reporting companies beating earnings expectations, an unusual combination given that the same week delivered one of the weaker jobs reports of the current cycle. US nonfarm payrolls fell by 23,000 in July, a sharp miss against economist forecasts calling for an increase of roughly 80,000, and payroll gains for the two prior months were revised down as well.
The details underneath the headline miss were arguably worse than the number itself. Government payrolls dropped by 53,000, and hiring softened across retail, leisure and hospitality, while healthcare — usually one of the more reliable job-growth sectors — grew more slowly than usual. Average hourly earnings rose just 2 cents on the month, pulling the 12-month wage growth rate down to 3.2%, the lowest reading since May 2021.
Markets read the miss as a rate-cut green light
Rather than sparking a selloff, the weak jobs data pushed traders to sharply raise bets on a Federal Reserve rate cut in September. According to CME Group's FedWatch tool, the probability of a September cut moved toward 70% in the report's aftermath — read by markets as some of the cleanest labor-market evidence yet supporting a policy shift, even as it signals genuine softening in hiring conditions underneath a market that keeps climbing.
Earnings season is doing a lot of the heavy lifting
The record close is happening alongside one of the strongest earnings seasons on record. Separate market data tracked by The Kobeissi Letter shows the S&P 500 has climbed in 13 of the last 17 instances following a significant breakout to a fresh all-time high over the past 30 years, with the index averaging roughly a 6.3% gain over the six months that followed those breakouts. That historical pattern, combined with an 85.1% beat rate this earnings season, is giving investors a reason to look past a labor market that's clearly cooling. For related context on how large capital pools are positioning for the months ahead, see Bitwise's read on where institutional money is likely headed next.
Related: Bitwise CIO: Institutions Could Push Bitcoin to $1.3M by 2035
A market pricing two different stories at once
The tension here isn't new, but it's rarely been this stark: a labor market showing genuine weakness is coexisting with a stock market at record highs, propped up by strong corporate earnings and the expectation that a softening jobs picture will pull the Fed toward easier policy. Whether that combination holds — strong earnings and rate-cut optimism outweighing a deteriorating jobs picture — will likely be tested again with the next round of labor data before the Fed's September meeting.
