Stocks finished the week on a positive note Friday as a softer-than-expected July employment report eased concerns about additional Federal Reserve tightening and renewed buying across growth-oriented and other rate-sensitive areas of the market. The S&P 500 gained 0.6% to notch a record closing high, the Nasdaq Composite climbed 1.3%, and the DJIA advanced 0.3%, leaving each major average with a weekly gain of at least 3.0%. The Russell 2000 (+1.1%) and S&P MidCap 400 (+1.3%) also turned in strong performances.

The July employment report provided the day's primary catalyst, showing no payroll growth during the month alongside a sizable downward revision to June. The softer labor-market picture prompted investors to dial back expectations for additional Fed tightening and sent Treasury yields lower. According to the CME FedWatch tool, the probability of a 25-basis point rate increase at the September FOMC meeting fell to 41.9% from 55.0% on Thursday, while the probability of at least one rate hike by October dropped to 57.3% from 71.0%. That shift in expectations provided a meaningful tailwind for growth-oriented and other interest-sensitive areas of the market.

Technology was a major beneficiary of the friendlier rate backdrop. The information technology sector (+1.3%) finished among the market's leaders as the PHLX Semiconductor Index climbed 2.6%, extending this week's rebound. Software stocks also enjoyed another strong session, lifting the iShares GS Software ETF (IGV) 3.3%. Cloudflare (NET 300.27, +15.84, +5.57%) rallied following its earnings report, while Palantir Technologies (PLTR 172.01, +16.09, +10.32%) added to its impressive gains from earlier in the week. Datadog (DDOG 233.93, +4.64, +2.02%) and AppLovin (APP 346.80, +11.13, +3.32%) also recovered a portion of Thursday's sharp post-earnings losses.

Strength extended well beyond technology. The consumer discretionary sector (+1.3%) benefited from a solid gain in Tesla (TSLA 328.58, +9.05, +2.83%), a strong post-earnings reaction in Airbnb (ABNB 178.07, +26.43, +17.43%), and buying interest across homebuilders and other rate-sensitive industries.

The materials sector (+1.5%) also outperformed as Newmont Corporation (NEM 112.98, +7.55, +7.16%) surged alongside a rebound in precious metals prices.

Mega-cap stocks remained an important source of support, with the Vanguard Mega Cap Growth ETF rising 0.9%. SpaceX (SPCX 133.11, +18.19, +15.83%) also posted a strong rebound, recovering much of its post-earnings decline from earlier this week. At the same time, solid gains in the Russell 2000 and S&P MidCap 400 underscored that Friday's advance extended well beyond the market's largest companies.

There were still a few notable pockets of weakness. The communication services sector (-0.4%) finished lower as The Trade Desk (TTD 13.80, -3.87, -21.90%) remained under heavy pressure following its earnings report, while Alphabet (GOOG 353.47, -3.15, -0.88%) extended its recent weakness after reports earlier this week of several senior AI departures.

The energy sector (-1.2%) was the day's primary laggard despite another increase in crude oil prices. WTI crude futures settled $0.92 higher (+1.2%) at $78.19 per barrel, though prices retreated after the close following reports that Oman and Iran are making progress toward an agreement to reopen the Strait of Hormuz.

The financials sector (-0.3%) rounded out the three S&P 500 sectors that finished lower.

Friday's advance capped an impressive week for equities, with a softer labor-market report complementing an already strong earnings backdrop. The resulting decline in Fed tightening expectations makes next week's July Consumer Price Index particularly important, as investors look for confirmation that inflation is easing enough to keep policymakers on hold.

U.S. Treasuries climbed on Friday, extending this week's rebound off July lows with unexpected help from a disappointing Employment Situation report for July. The 2-year note yield settled down five basis points to 4.20% (-9 basis points this week), and the 10-year note yield settled down two basis points to 4.65% (-10 basis points this week).

• Russell 2000: +22.3% YTD
• S&P Mid Cap 400: +17.6% YTD
• Nasdaq Composite: +14.8% YTD
• S&P 500: +13.3% YTD
• DJIA: +12.4% YTD

Reviewing today's data:

• The July employment report falls into the domain of "bad news is good news." Participants are recognizing that nonfarm payroll growth was weak (actually, there was no growth), that wage inflation disinflated, and that the labor force participation rate continues to dwindle.
  • The key takeaway from the report is that it was soft enough, presumably, to keep Fed officials in a wait-and-see mode, such that they could see a better case now for not raising the target range for the fed funds rate at the September FOMC meeting.
• Consumer credit increased by $14.2 bln in June (Briefing.com consensus $9.0 bln) following a downwardly revised $1.1 billion decline (from -$0.2 billion) in May.