U.S. stock futures advanced Friday morning despite a deeply disappointing August jobs report, as the weak data strengthened investor expectations for a Federal Reserve interest rate cut later this month.
Futures for the S&P 500 rose 0.4%, and Nasdaq-100 futures climbed 0.9%. Futures tied to the Dow Jones Industrial Average added 29 points, or 0.1%.
The U.S. economy added just 22,000 jobs in August, the Bureau of Labor Statistics reported, falling far short of the 75,000 new jobs forecast by economists polled by Dow Jones. The unemployment rate rose to 4.3%, which was in line with expectations.
The soft labor market reading is seen as bolstering the case for the Federal Reserve to proceed with a rate cut at its September 17 policy meeting. According to the CME Group’s FedWatch tool, futures trading indicates a high probability of a quarter-percentage-point reduction. Following the jobs data, traders also began pricing in the possibility of a more aggressive half-point cut, an option that had been given a zero percent chance the previous day.
“This gives the Fed the greenlight to cut by 25 basis points and I think it’s going to bring 50 basis points of rate cuts on the table for this September FOMC meeting and that’s why markets are positive,” said Saira Malik, Nuveen’s head of equities and fixed income, on CNBC’s “Squawk Box.” (One basis point equals 0.01%.)
The market’s positive reaction comes as investors, with major indexes already near record highs, bet that monetary easing can support a slowing but still resilient economy. The major indexes are also on track for a positive week, with the S&P 500 up 0.7% and the tech-heavy Nasdaq Composite gaining 1.2%. The Dow has seen a modest weekly increase of 0.2%.
Friday’s gains were also supported by company-specific news. Shares of chipmaker Broadcom surged 14% in premarket trading after its latest quarterly results surpassed Wall Street estimates. In a call with analysts, CEO Hock Tan also revealed that the company had secured $10 billion in orders for custom AI chips from a new client.
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