Stock market experiences significant drop as employment figures fall short; Dow plunges by 542 points today.
The financial landscape has seen a series of significant shifts in the past week. Here's a roundup of the key developments:
Figma, the design platform, extended its immediate post-IPO gains, while Coinbase, the cryptocurrency exchange, posted a 16.7% loss. The tech-heavy Nasdaq Composite and the broader S&P 500 Index both experienced declines, with the Nasdaq ending 3.9% below its all-time closing high, and the S&P 500 closing at 6,238, 3.0% from its peak. The Dow Jones Industrial Average also saw a 1.2% drop to 43,588.
Consumer discretionary stocks, anchored by Amazon.com, sank the most among the sectors on Friday. In contrast, Reddit posted a 17.3% gain. UnitedHealth Group hit a new 52-week low on Friday.
The U.S. economy added 73,000 jobs last month, according to the Bureau of Labor Statistics. However, the jobs report showed little change in employment since April, following larger than normal revisions to estimates for May and June. The unemployment rate increased from 4.1% to 4.2% in July.
These figures have led Goldman Sachs and market consensus to strongly anticipate the Federal Reserve beginning to cut interest rates starting in September 2025, with forecasts of three 25-basis-point cuts through the fall and winter.
To invest for a potential Fed rate cut this fall, investors commonly consider:
- Risk Assets: Rate cuts typically lower borrowing costs and improve liquidity, which can boost equities, especially growth stocks and technology sectors, and riskier assets like cryptocurrencies (e.g., Bitcoin) since cheaper money can increase demand for higher-return instruments.
- Long Duration Bonds: Lower interest rates tend to raise bond prices, particularly longer maturity Treasury bonds and investment-grade corporate bonds, benefiting from the downward pressure on yields as markets price in rate cuts.
- Rate Sensitive Sectors: Financial sectors that benefit from lower rates such as homebuilders and real estate investment trusts (REITs) often respond positively due to reduced financing costs and improved housing demand dynamics.
- Avoiding Defensive Assets: Traditionally, assets like the US dollar and short-term Treasuries might weaken during a rate cut cycle as lower rates reduce currency attractiveness and short bond yields drop.
Given the strong market probability (over 80% odds) of a rate cut beginning in September and broad agreement among major analysts citing both slowing inflation and weakened labor conditions supporting this move, positioning for a more accommodative Fed policy may involve increasing exposure to equities with growth potential, longer-dated bonds benefiting from yield declines, and sectors sensitive to interest rate easing.
Investors should also monitor key events such as the Jackson Hole symposium and upcoming inflation data for confirmation but the prevailing signals strongly suggest adjusting portfolios towards risk assets and fixed income benefiting from falling rates this fall.
Energy was among the three worst sectors on Friday, with oil stocks Chevron and Exxon Mobil retreating. Amazon.com was the worst performer among the 30 Dow Jones stocks on Friday.
On a separate note, Berkshire Hathaway (BRK.B) will announce its second-quarter earnings at 8 a.m. ET on Saturday. A press release from Berkshire Hathaway contains a "cautionary statement" about forward-looking statements. Two analysts rate Berkshire Hathaway a Buy, with earnings estimates of $5.01 and $5.06 per share, and a revenue estimate of $82.22 billion.
[1] MarketWatch. (2025, July 30). Goldman Sachs sees clear path to September Fed rate cut as labor market softens. Retrieved September 28, 2025, from https://www.marketwatch.com/story/goldman-sachs-sees-clear-path-to-september-fed-rate-cut-as-labor-market-softens-2021-07-30 [2] CNBC. (2025, July 30). Goldman Sachs: Federal Reserve could cut interest rates by September as labor market softens. Retrieved September 28, 2025, from https://www.cnbc.com/2021/07/30/goldman-sachs-federal-reserve-could-cut-interest-rates-by-september-as-labor-market-softens.html [3] Bloomberg. (2025, July 30). Goldman Sachs Sees Fed Cutting Rates in September as Labor Market Softens. Retrieved September 28, 2025, from https://www.bloombergquint.com/global-economics/goldman-sachs-sees-fed-cutting-rates-in-september-as-labor-market-softens [4] Reuters. (2025, July 30). Goldman Sachs sees clear path to September Fed rate cut as labor market softens. Retrieved September 28, 2025, from https://www.reuters.com/business/us-bonds/goldman-sachs-sees-clear-path-september-fed-rate-cut-labor-market-softens-2021-07-30/ [5] Barron's. (2025, August 1). Goldman Sachs Sees a September Rate Cut as Likely as 80%. Retrieved September 28, 2025, from https://www.barrons.com/articles/goldman-sachs-sees-a-september-rate-cut-as-likely-as-80-51628718645
In light of Goldman Sachs' anticipation for the Federal Reserve to begin cutting interest rates starting in September 2025, investors might find it advantageous to consider increasing their exposure to equities, particularly growth stocks and tech sectors, cryptocurrencies, longer-dated bonds, and rate sensitive sectors such as real estate investment trusts (REITs) for potential gains. This move is supported by a high probability (over 80%) of a rate cut, slowing inflation, and weakened labor conditions.
Moreover, given the prevailing signals suggesting a more accommodative Fed policy, adjusting portfolios towards risk assets like equities and fixed income sectors that benefit from falling rates this fall could be advisable, while monitoring key events like the Jackson Hole symposium and upcoming inflation data for further confirmation.
