Cooling U.S. Jobs Report Eases Pressure on Fed, Buoys Stock Market Outlook

A weaker-than-expected June jobs report provided relief for US equities as investors worried that continued labor market strength could prompt the Federal Reserve to adopt a more hawkish stance on inflation, potentially weighing on the technology stocks that have fueled this year's market rally, Reuters reported.

Investors monitor Wall Street after a weaker June jobs report reduced expectations of a near-term Federal Reserve rate hike. (Photo: Federalreserve Flickr)

The US Labor Department said job growth slowed more than expected in June, while payroll gains for the previous two months were revised lower, signaling a cooling but still resilient labor market.

The report prompted financial markets to scale back expectations of a near-term Federal Reserve interest rate hike.

The softer employment data may also give the stock market more room to extend its gains, even as elevated valuations, sharp swings among trillion-dollar companies, and periodic sell-offs have raised concerns that parts of the market may be overvalued.

US stocks initially rose before surrendering their gains, while the US dollar weakened as traders reduced expectations of a rate hike as early as September.

"This jobs report lets anyone concerned about an imminent Fed hike breathe a sigh of relief," said Adam Sarhan, chief executive of 50 Park Investments in New York.

"It doesn't mean the fear of inflation is over. It just takes the pressure off the Fed to raise rates in the short term," Sarhan added.

Last month, investors were reminded how quickly this year's strong market rally could reverse after the Fed left interest rates unchanged but projected another rate increase later in the year because of persistent inflation concerns.