US Session: Wall Street prepares for a red start after weak NFP data

Market pressures, driven by disappointing employment data and Trump’s aggressive trade policies, are setting the stage for a volatile August. The possibility of an early Fed rate cut is becoming increasingly real, which could temporarily stabilize stocks, especially in the technology sector. However, given the geopolitical and macroeconomic risks, traders’ focus should shift to defensive sectors, reducing exposure to companies with high operational uncertainty, and actively monitoring signals from the Federal Reserve.

U.S. stocks started August under pressure as investors weighed signs of a slowing economy and President Donald Trump’s revised tariffs. Futures on the Dow Jones Industrial Average fell 308 points, or 0.7%. The S&P 500 fell 0.8% and the Nasdaq-100 fell 0.9% amid a sharp decline in Amazon shares. The July jobs report showed nonfarm payrolls rose by just 73,000, well below the 100,000 expected by a Dow Jones survey. The figures for previous months were sharply revised downward: June growth was cut to just 14,000 (from 147,000) and May to 19,000 (from 125,000), confirming the weakening labor market.

This data raises the likelihood that the Federal Reserve will cut interest rates sooner to support the economy – an expectation that is partially limiting pressure on stocks. After the employment report was released, markets priced a 63% chance of a September rate cut (according to CME futures data), a sharp reversal from Wednesday, when the odds fell after Fed Chairman Jerome Powell said he needed to wait and see about the impact of tariffs on inflation.

Market sentiment is further worsened by new tariffs imposed by Trump on August 1st, ranging from 10% to 41%. For goods diverted to avoid tariffs, the White House is announcing an additional 40% tariff.

“Just two days after the end of the Fed meeting, its dual mandate – a balance between employment and inflation – is being activated again. The weak performance of the labor market this morning, combined with the massive revisions, puts the Fed under pressure again,” commented Chris Zaccarelli, investment director at Northlight Asset Management.

“The initial reaction in the markets is a drop in interest rates and pressure on futures. It is usually more important to look at the 3-month average, but with a revision of -258,000 jobs and the headline becomes significant,” he adds. The biggest shock to markets comes from a measure against Canada, one of the US’s main trading partners. Imported goods from the country will now be subject to a 35% tariff, up from the previous 25%.

Amazon shares fell more than 7% after the company issued weak guidance for its operating profit for the current quarter. But the tech picture isn’t all doom and gloom, with Apple shares jumping 2%, buoyed by better-than-expected revenue and profit. Markets are coming off a sluggish session, with the S&P 500 posting a third straight day of losses despite strong reports from Microsoft and Meta. Both the S&P 500 and Nasdaq hit intraday records, but the tech rally didn’t last. July was a generally positive month, with the S&P 500 ending up 2.2%, the Nasdaq adding 3.7%, and the Dow rising symbolically by less than 0.1%. So far this week, the indices are in the red: the S&P 500 is headed for a loss of 0.8%, the Dow is down 1.7%, and the Nasdaq is barely managing to stay positive by less than 0.1%.