Equities rise as labour market cools

U.S. equities moved higher over the past week, with several major indexes reaching fresh record highs.

Investor sentiment was supported by generally favourable corporate earnings, renewed enthusiasm for artificial intelligence (AI)-related stocks and optimism surrounding the potential reopening of the Strait of Hormuz.

The Nasdaq Composite led the gains with its strongest weekly performance since April, while the S&P 500 and Russell 2000 also advanced.

The Dow Jones Industrial Average gained nearly 3%.

At the same time, economic data pointed to a cooling U.S. labour market. Employers shed 23,000 jobs in July, significantly below expectations of around 80,000 new jobs.

Previous employment figures were also revised lower, marking the fourth consecutive month of weakening monthly job growth. Job openings declined to 7.359 million in June, while private employers added only 44,000 jobs in July. However, weekly unemployment claims remained relatively subdued, suggesting that widespread layoffs have not yet emerged.

The softer labour data increased expectations that monetary policy could become less restrictive, with the probability of a September rate hike falling to around 42%. Treasury yields also declined, with the 10-year yield falling from 4.74% to approximately 4.64%.

European equities also recorded a positive week, supported by stronger risk appetite, resilient corporate earnings and improving economic activity. The STOXX Europe 600 gained 1.70%, while Germany’s DAX rose 2.69%, France’s CAC 40 increased 2.41% and Italy’s FTSE MIB advanced 2.96%. The UK’s FTSE 100 gained a more modest 0.30%.

A key development was the improvement in eurozone services activity. The services PMI increased to 51.7 in July from 49.4 in June, returning to expansion and reaching its highest level in five months. Stronger employment and business confidence provided additional support, while selling-price pressures moderated. The data offered some reassurance that economic activity was recovering following the energy shock earlier in the year, although conditions remained uneven across individual economies.

France and Germany also recorded improvements in services activity, although both remained just below the 50 threshold that separates expansion from contraction. France’s services PMI rose to 49.8 from 46.8, while Germany’s increased to 49.8 from 48.6. Meanwhile, the UK economy showed broader signs of improvement, with services PMI returning to expansion at 52.1 and manufacturing PMI rising to 52.8.

Technology and AI remained important drivers of global investor sentiment during the week. In the U.S., renewed enthusiasm for AI-related companies contributed to the strong performance of technology-heavy equities. The trend was also visible in China, where technology and semiconductor-related shares supported gains in mainland markets. The Shanghai Composite rose 2.81%, while the CSI 300 gained 2.32%.

China’s trade data remained particularly resilient. Exports increased 23.9% year over year in July, while imports rose 27.5%, with demand for AI-related electronics and other high-tech products remaining a key contributor to export growth. However, manufacturing and services surveys pointed to a moderation in domestic economic momentum. Manufacturing PMI eased to 50.9, while services PMI declined to 50.4.

Japan also saw its equity markets advance, with the Nikkei 225 gaining 1.93% and TOPIX rising 1.79%. Investors continued to assess currency intervention by Japanese authorities and the possibility of another Bank of Japan rate hike. Meanwhile, weaker household spending highlighted the challenges facing domestic consumption despite rising wages.

Overall, the week highlighted a global economy balancing resilient equity markets and technological growth against softer labour conditions, uneven economic activity and continued geopolitical uncertainty.

As markets navigate changing economic conditions and geopolitical developments, investors will continue to watch closely for signs that could shape the outlook for growth, inflation and monetary policy in the weeks ahead.