August 7, 2026
The July employment report was the week’s dominant story as U.S. employers unexpectedly cut jobs during the month, the first monthly payroll decline in months and a sharp miss against what economists had expected. Meanwhile, oil prices fell as reported progress toward a Strait of Hormuz shipping agreement between Iran and Oman eased the geopolitical risk premium that had driven crude toward $90 per barrel in mid-July. The soft labor data outweighed otherwise firm business activity surveys, and Treasury yields moved lower across the curve while equities advanced to record highs by week’s end.
Nonfarm payrolls fell by 23,000 in July, well below the consensus for an increase near 88,000, and revisions lowered May to 63,000 and June to 20,000, a combined reduction of 103,000. The unemployment rate edged down to 4.1% from 4.2%, though the move reflected a slip in the labor force participation rate to 61.4% rather than stronger hiring. Job losses centered on local government education, leisure and hospitality, and retail trade, partially offset by gains in healthcare. Average hourly earnings rose less than expected, edging up 0.1% on the month and 3.2% from a year earlier. In contrast, the ISM Manufacturing index rose to 55.6 from 53.3, the highest level since May 2022, while ISM Services held at 54.1.
Treasury yields fell as the soft jobs data pressured rates lower across the curve. At the time of this writing, the 2-year U.S. Treasury yield declined approximately 10 basis points on the week to 4.20%, and the 10-year yield fell 12 basis points to 4.65%, leaving the 2-year to 10-year spread little changed near 45 basis points. The S&P 500 rose approximately 3.9% to 7,748 near a record high. West Texas Intermediate (WTI) crude oil is near $78 per barrel and Brent near $83, with WTI down on the week as Iran-Oman talks over the Strait of Hormuz drove sentiment. Gold reversed recent declines and traded near $4,300 per ounce, a multi-week high.
The Chandler team continues to expect the Federal Open Market Committee (FOMC) to hold the federal funds rate in its current 3.50% to 3.75% target range through the remainder of 2026, following its late-July decision to hold. The unexpectedly soft July employment report reinforces our view, tempering the energy-driven inflation risk that dominated recent weeks and shifting market pricing away from the possibility of a rate hike. Softer labor data biases front-end yields lower and the curve toward a steeper slope. Our portfolios remain positioned with an emphasis on high credit quality, liquidity, and disciplined duration and credit risk management.
Next Week: NFIB Small Business Optimism, ADP Employment Change, Existing Home Sales, MBA Mortgage Applications, Consumer Price Index (CPI), Real Average Earnings, Federal Budget Balance, Initial Jobless Claims, Continuing Claims, Producer Price Index (PPI), Retail Sales, University of Michigan Sentiment, Business Inventories.
Written by Karl Otto Meng, CFA, Portfolio Strategist