Deutsche Bank strategists Jim Reid and colleagues note that a softer US jobs report reduced expectations for further Federal Reserve tightening in 2026, with just 30 bps of hikes priced by December. US Treasuries rallied at the front end, while the S&P 500 was held back by semiconductor weakness even as the equal-weighted S&P 500 hit fresh highs. The team highlights broad equity strength underpinned by lower Oil prices and dovish rate repricing.

Broad US equities gain as chips lag

"Ahead of that, markets put in another strong performance yesterday, as an underwhelming US jobs report led to mounting hopes that the Fed wouldn’t hike rates this year. Indeed, the newsflow was pretty dovish in general, as we saw Brent crude trade within touching distance of $70/bbl for the first time since February, though it ultimately settled +0.32% higher on the day at $71.80/bbl."

"But because payrolls grew by less than the +113k reading expected, the print also helped to push back against the prospect of an imminent rate hike. Indeed, the details included downward revisions to the April and May prints of -74k in total, which took the 3-month average for payrolls down to +111k, so relative to expectations it generally underwhelmed."

"This backdrop of lower oil prices and a dovish repricing was generally a very strong one for equities. That was particularly clear in Europe given its exposure to the energy shock, and the STOXX 600 (+1.41%) hit a new record high, as did the DAX (+2.16%). In the US, equities also did very well for the most part, though the S&P 500 index rose by a mere hundredth of a point to 7483.24 (+0.0001%) as its advance was curtailed by another slump in chip stocks."

"Indeed, the Philly semiconductor index was down -5.44% yesterday, building on its -6.27% decline on Wednesday, with all 30 companies in the index losing ground. So given that semiconductor stocks make up around a sixth of the S&P 500, it was tough for the index to gain much traction, even though 70% of its constituents still advanced on the day."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)