The first piece of the "August Curse" activated? U.S. non-farm payrolls fall far short of expectations, Wall Street falls into a panic sell-off

According to the Zhitong Finance APP, as inflation remains high, tariffs weigh heavily, and consumer spending faces multiple uncertainties, the U.S. labor market is clearly shifting downward—recent non-farm payrolls and revised data from previous months indicate a sharp cooling in U.S. job growth over the past three months. This weak and far-below-expectation non-farm report has significantly boosted expectations for interest rate cuts by the Federal Reserve, with the current interest rate futures market betting on two rate cuts in September and December, whereas prior to the weak non-farm report, there was only a bet on one cut or even no cuts at all. However, for Wall Street bulls and global stock markets, the first important piece of the puzzle regarding the "August stock market sell-off curse" is now in place.

According to the employment report released by the U.S. Bureau of Labor Statistics on Friday, non-farm employment in the U.S. increased by only 73,000 in July, far below the general expectation of 110,000 from economists, while the increases for the previous two months were unexpectedly revised down by nearly 260,000 in total—this downward revision has shocked Wall Street, igniting a wave of selling sentiment and giving the bears the upper hand. The revised statistics show that over the past three months, an average of only 35,000 jobs were added each month, marking the worst performance since the COVID-19 pandemic began. The unemployment rate last month slightly rose to 4.2%, which is basically in line with market expectations.

The latest non-farm employment data further indicates more significant signs of weakness in the labor market. Not only has non-farm employment growth noticeably slowed and the unemployment rate risen, but previously released data on unemployment claims, layoffs, and job openings also show that it has become more difficult for unemployed Americans to find new jobs, and wage growth has essentially stagnated. These latest labor market data add significant risks to the already slowing trends in consumer and business spending.

Nick Timiraos, a well-known journalist dubbed the "mouthpiece of the Federal Reserve," stated after the non-farm report was released that the slowdown in employment over the past three months may open the door for Federal Reserve officials to consider rate cuts at their next meeting in September. "At the very least, this highlights the difficult balance they face amid economic slowdown and rising inflation pressures. Given that the labor market had previously shown robust job growth, Federal Reserve officials felt comfortable maintaining interest rates unchanged for the remainder of the year. However, the significant downward revisions to the employment data for May and June have changed that situation," Timiraos wrote in a tweet.

Ali Jaffery, an analyst at Canadian CIBC, wrote after the U.S. non-farm data was released: "Today's report shows a situation that is starkly different from the job market described by Powell earlier this week, and it increases the likelihood of a Federal Reserve rate cut in September. That said, it still depends on whether the upcoming inflation reports show persistence and whether the labor market weakens further." After all, the unemployment rate remains at a reasonable level, and even the worst reports are not enough to make all hawkish individuals completely change their stance.

Kathy Bostjancic, Chief Economist at Nationwide, stated: "The cracks in the labor market have significantly widened, further intensifying the pressure for the Federal Reserve to cut interest rates, and supporting the view of dissenting Federal Reserve governors that the FOMC should cut rates this week."

After a "hawkish" press conference, Powell faced backlash from the non-farm payrolls report

A series of heavyweight data this week showed that the endogenous momentum of the U.S. economy is weakening, and the trend of cooling inflation is stagnating—these all indicate that the "stagflation" that Wall Street and the Federal Reserve are most worried about is getting closer to the U.S. economy, which is also one of the reasons why Federal Reserve officials maintained interest rates unchanged amid differing opinions.

At the press conference following the decision to keep the benchmark interest rate unchanged on Wednesday Eastern Time, Federal Reserve Chairman Powell still insisted that the U.S. labor market is "rock solid," and stated that global central banks need to be wary of the risk of inflation rising again—especially in the context of the latest tariffs from Trump being implemented, the inflationary effects brought by tariffs may gradually become apparent starting this summer.

It is understood that Powell emphasized multiple times in his post-meeting remarks that the U.S. labor market remains strong, while there are inflationary risks, and maintaining stable interest rates is a "prudent move." Powell also mentioned that the impact of changes in the Trump administration's policies remains uncertain, and the reasonable basic assumption at present is that the impact of tariffs on inflation will be short-term, but it may also make the inflationary effects more stubborn. The impact of tariffs on inflation has already begun to show, but it is still too early to judge the extent of the impact.

After the latest non-farm payroll data was released, the declines in the three major U.S. stock index futures quickly widened, with selling sentiment spreading across Wall Street and global stock markets, while U.S. Treasury yields and the dollar fell. The Federal Reserve will see another non-farm payroll report and several inflation data before the September meeting.

It is understood that the weak growth in non-farm employment in July mainly reflects large-scale job losses in manufacturing, professional and business services, and government sectors. The overall downward revision in the previous two months is largely attributed to significant adjustments in employment positions in local government education departments. Private sector employment rebounded after nearly stagnating in June, mainly driven by the healthcare and social assistance sectors.

Trump's cuts to government spending continue to impact the U.S. job market. Federal government jobs have been reduced for six consecutive months in July, and the unemployment rate continues to rise in areas concentrated with government jobs, such as Washington. Layoffs at U.S. universities and non-profit organizations reliant on federal funding are also affected.

Demand in other areas of the labor market remains generally healthy. Job vacancies are still above pre-COVID levels, and the number of initial unemployment claims has declined in recent weeks, but the number of people continuously applying for unemployment benefits has significantly increased, indicating that employees who have been laid off or left their jobs are struggling to find new work. The scale of layoffs remains relatively low historically, but influenced by factors such as the rise of artificial intelligence, layoffs in the U.S. tech industry are increasing, especially with U.S. tech giant Microsoft laying off as many as 15,000 employees this year, accounting for about 5% of its global workforce Labor Participation Rate Is Also Not Optimistic

The U.S. non-farm payroll report includes two surveys—one from businesses generating employment data and another from households and families releasing indicators such as unemployment rate and labor participation.

The labor participation rate—the proportion of the population actively engaged in employment or job-seeking—has dropped to 62.2%, the lowest in nearly three years; the participation rate of the core workforce aged 25-54 has also declined. Some economists claim that Trump's significant tightening of immigration policies has led to a large-scale exit of illegal foreign labor from the labor market, significantly dragging down the participation rate and somewhat suppressing the rise in unemployment rate.

The increase in unemployment rate partly stems from more people being directly laid off or leaving voluntarily, which is particularly evident in the U.S. tech industry amid the rise of artificial intelligence. The latest non-farm employment data shows that the number of people unemployed for 27 weeks or more unexpectedly rose to 1.83 million, the highest since the end of 2021. At the same time, the number of people forced to work part-time for economic reasons is also increasing.

Federal Reserve officials are closely monitoring how the dynamics of supply and demand in the U.S. labor market affect wage growth—especially in the context of rising inflation risks. The July non-farm payroll report indicates that average hourly wages increased by 3.9% compared to the same period last year, consistent with previous values and market expectations.

Is the "August Curse" About to Be Fully Awakened?

Historical data shows that the largest stock market fluctuations often occur in August. Worse still, August is typically one of the two worst-performing months for the stock market throughout the year. After setting the strongest consecutive gains since 2020, the S&P 500 index, which is near historical highs in valuation, is about to enter the traditionally "most difficult period of the year."

Statistics indicate that over the past thirty years, this benchmark index has performed the worst in August and September, with an average decline of 0.7%, while other months have an average increase of 1.1%. Analysts generally believe that this seasonal selling characteristic partly stems from fund managers typically reassessing their annual portfolios during this period. This year, during the sensitive window of August to September, any news regarding Trump tariffs, economic data, Federal Reserve interest rate paths, or corporate earnings reports could trigger severe sell-offs in the stock market. Therefore, some Wall Street analysts suggest that the first core factor in activating this curse lies in weak non-farm data.

Before the non-farm data is released, some investment institutions are calling for "selling high" or adopting hedging strategies to protect portfolio returns during this low-cost, low-volatility period. So far, Wall Street remains bullish on the stock market in the long term, mainly due to strong expectations for a "soft landing" of the U.S. economy and robust earnings performance of tech companies closely related to AI. However, there are also concerns: valuations are continuously elevated, and uncertainties in trade negotiations remain significant. Meanwhile, the Chicago Board Options Exchange Volatility Index (VIX) is not far from its lowest level since February, making it suitable for hedging configurations at low-cost moments.

What kind of negative market impact could this non-farm data have on the stock market? JPMorgan's market intelligence team, in research conducted on the eve of the non-farm release, shows: if non-farm payrolls are between 80,000 and 100,000, the probability of this scenario is 25%, and the S&P 500 index would decline by 0.5%-1%; if non-farm payrolls are below 80,000 The probability of this scenario occurring is only 5%—unfortunately, if the July non-farm payrolls fall below this pessimistic viewpoint, the S&P 500 index will decline by 1.5%-2.5%