US stocks end higher on expectations of lower rates, easing trade tensions

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U.S. stocks closed higher as investors priced in higher chances of an imminent Federal Reserve rate cut and some easing tariff worries.

Rate cut expectations jumped after businesses added a less-than-expected 73,000 new jobs in July, the Bureau of Labor Statistics said. Even worse, job gains for May and June were revised down by a whopping 258,000, portraying a much weaker labor market than believed in late spring and early summer and setting off alarms that the Federal Reserve may have been wrong about leaving interest rates unchanged last week.

Federal Reserve Governors Chris Waller and Michelle Bowman, who voted to lower rates last week, "commented that they felt the Fed was being 'overly cautious' with the risk that policy is 'falling behind the curve,'" said James Knightley, chief international economist at Dutch bank ING. "This sentiment is likely going to be felt more broadly within the Fed after (the jobs) numbers, especially with tariffs set to eat into household spending power and corporate profits, thus creating a major headwind for growth."

Trump's new trade deadline is also this week, on Aug. 7, when a new slate of hefty tariffs goes into effect on many countries unless last-minute deals are struck to negotiate lower duties. Trump's announcement of these new tariffs helped to sink stocks last week.

However, the European Union said the retaliatory tariffs on U.S. goods it had planned for Aug. 7 would be delayed by six months, allaying some nervousness over tariffs.

In the face of a possible 39% tariff on its goods, Switzerland said it was ready to make concessions to make its trade offer more attractive to the United States.

The blue-chip Dow rose 1.33%, or 578.32 points, to 44,166.90; the broad S&P 500 added 1.47%, or 91.93 points, to 6,329.94; and the tech-heavy Nasdaq gained 1.95%, or 403.45 points, to 21,053.58. The benchmark 10-year Treasury yield dipped to 4.198% as investors began to expect a rate cut to boost the labor market.

Earnings also continue to roll out and could provide traders with some direction. Of the 330 S&P 500 companies that have reported earnings as of Aug. 1, 80.6% have surpassed analyst expectations, the highest beat rate since the third quarter of 2023, according to data compiled by data provider LSEG I/B/E/S.

Will the Fed lower rates soon?

The CME FedWatch tool, which measures the odds the Fed will change rates at upcoming policy meetings, now shows more than a 92% chance for a rate cut at the Fed's September meeting.

However, Comerica Bank Chief Economist Bill Adams said chances of a September rate cut are high but not a sure bet.

"The decision isn’t a slam dunk, since labor supply also fell in July," he said. "In fact, the labor force level has fallen for three straight months... The Fed will see the August jobs report before their September rate decision. If it shows labor supply declined again and held the unemployment rate steady while tariffs push up inflation, the Fed is likely to hold interest rates steady again."

President Trump’s sweeping tariffs take effect

New U.S. tariffs are ready to take effect, targeting trade deficits with rates up to 41% and key country exemptions.

If the Fed does cut in September though, "this would heighten the chances of follow up 25-basis-point cuts in October and December despite a temporary rise in inflation on tariffs," Knightley said.

Separately, President Donald Trump said he will name a new Federal Reserve governor and a new jobs data statistician in the coming days. Last week, Fed Governor Adriana Kugler said she's resigning from the central bank's board on Aug. 8, and Trump fired Erika McEntarfer, the U.S. commissioner of Labor Statistics, after the weak jobs report.

"Of the two personnel changes in economic policy Friday – McEntarfer’s dismissal, and Fed Governor Kugler’s resignation – we see the sacking of the BLS Commissioner as more significant," said Michael Feroli, chief U.S. economist at JP Morgan. McEntarfer's firing "presents risks to the conduct of monetary policy, to financial stability, and to the economic outlook."

Corporate news

• Tesla granted its chief executive, Elon Musk, 96 million shares worth about $29 billion. Shares of the electric vehicle giant rose 2.19%.
• Boeing defense workers are ready to strike at midnight over a labor contract, endangering the plane maker's turnaround efforts. Shares inched up.
• Idexx Laboratories reported better-than-expected second-quarter results. Its shares soared 27.49%.
• American Eagle Outfitters stock rallied 23.65% after Trump approved of a controversial jeans campaign starring actress Sydney Sweeney.
• Tyson Foods topped analysts' estimates with its fiscal third-quarter results and raised its annual sales outlook. Shares rose 2.45%
• ON Semiconductor's second-quarter earnings per share matched forecasts and sales just beat estimates. Its third-quarter outlook range bracketed analysts' estimates. Shares lost 15.58%.
• Home goods retailer Wayfair reported its highest revenue growth and profitability since 2021. It surprised analysts with a profit instead of a loss on higher-than-expected sales. Shares rallied 12.76%.
•  Amphenol is nearing a deal to buy CommScope's broadband connectivity and cable unit, The Wall Street Journal reported. CommScope shares soared 86.26%.
• Joby Aviation is exploring the acquisition of helicopter ride-share operator Blade Air Mobility, according to Bloomberg. Blade stock rose 17.2%.
• Spotify said it's raising prices for premium individual subscriptions in several markets, starting in September. The music streamer's shares rose 4.95%.
• BP said it made its largest discovery of oil and gas in 25 years, off the coast of Brazil. Shares added 2.33%.
• Berkshire Hathaway's quarterly results declined on a weaker insurance unit. Tariffs could hit its businesses, it warned. The stock fell more than 2.5%.
• After the market closed, Palantir's fiscal third-quarter results beat analysts' forecasts, with revenue surpassing $1 billion for the first time. The software analytics provider also lifted its full-year sales outlook.

Oil sinks

Oil prices are under pressure after oil-producing countries and their allies, also known as OPEC+, agreed again to increase output at a time the global economy may be slowing, stoking fears of an oil glut ahead.

OPEC+ agreed to an additional 547,000 barrels-per-day of output starting in September.

Oil was last down 1.93% at $66.03 per barrel.

Cryptocurrency

China reportedly denied it has enacted a new cryptocurrency ban. In 2021, China banned cryptocurrency trading and mining, but nothing new has been issued despite viral reports saying so.

Bitcoin was last up 0.5% at $114,789.80.

(This story was updated with new information.)

Medora Lee is a money, markets, and personal finance reporter at Paste BN. You can reach her at mjlee@usatoday.com and  subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.