Stock markets at highs with weak employment and focus on the Fed and China

Main angle of the week

• 📈 The S&P 500 closed on Friday, July 3 at 7,394.30 points and the Nasdaq Composite ended at 25,809.66, both still close to all-time high territory despite a weaker employment reading.
• 🧭 The official June employment report in the U.S. showed 57,000 nonfarm payrolls and an unemployment rate of 4.2%, well below the consensus of 110,000 payrolls reported by Trading Economics.
• 🛢️ In cross-asset markets, EUR/USD closed at 1.1440, the 10-year Treasury stood at 4.485%, and gold continued to act as a defensive asset with additional support from the cooling U.S. labor market, as reflected by Reuters on Yahoo Finance.

What happened this week

Friday closes and breadth

Friday, July 3, ended with a constructive picture in Europe. The Euro Stoxx 50 finished at 6,412.68 points at 18:00 CEST and the IBEX 35 closed at 19,852.40 points at 17:35:30 CEST. In both cases, the final session was positive and capped off a week with a firm tone.

In the United States, the S&P 500 closed at 7,394.30 points. The Nasdaq Composite ended at 25,809.66. The most useful takeaway is not just the level, but that the market absorbed a macro reading that cooled growth and still did not trigger a serious risk correction.

Breadth confirmed the move. The Russell 2000 closed at 2,921.03 points, with a daily gain of 3.02%, outperforming the S&P 500 in the final session. At the same time, the VIX ended at 15.81. That combination usually indicates that the market is not relying only on mega-caps and that the short-term protection premium remains contained.

Most relevant macro data

The key data point of the week was June employment in the United States, published on Thursday, July 2. The BLS report showed that nonfarm payrolls increased by 57,000, while the unemployment rate came in at 4.2%. The official report itself added that employment change was limited and that the labor market continued to advance, but at a clearly slower pace.

Against that figure, the consensus tracked by Trading Economics pointed to 110,000 payrolls, with the prior reading revised to 129,000. The miss was clear. In addition, hourly wages rose 0.3% month-on-month in June, in line with consensus and the previous reading, according to Trading Economics and the detail in the Employment Situation.

The market reading is straightforward. Growth is losing some momentum, but there is no sign of disorderly deterioration. That reduces pressure on the Fed in the very short term. It also explains why equities were able to hold up and why gold reacted higher in the latter part of the week.

Cross-asset and relative valuation

In currencies, EUR/USD closed on Friday, July 3 at 1.1440. In rates, the 10-year Treasury stood at 4.485%. That combination remains demanding for long-duration assets, but it did not prevent equities from maintaining their tone because the market interpreted the employment data as marginally disinflationary.

In commodities, gold traded near $4,165 per ounce in spot and gold futures ended the week at $4,187.30. The move fits with falling expectations of monetary tightening after the employment report, as highlighted by Reuters. In crude, the market will continue to watch Brent as the immediate geopolitical thermometer.

Valuation remains a delicate point. Yahoo Finance showed for large-cap stocks and market benchmarks still-high forward multiples at the beginning of July, and the level of the S&P 500 leaves a very tight implied earnings yield versus the 10-year. The ERP, understood as the index earnings yield minus the 10-year Treasury yield, remains compressed. That means the valuation cushion versus fixed income is thin and requires confirmation from earnings and inflation.

What could move markets next week

Corporate earnings: a low-intensity week

The week from Monday, July 6 to Friday, July 10 arrives with a light earnings calendar among large-cap companies in the visible schedules of Yahoo Finance and the Nasdaq earnings calendar. The focus, therefore, will remain more on macro, rates, and oil than on corporate surprises capable on their own of changing the market’s direction.

This does not eliminate micro risk. In periods of demanding valuations, even a week with few earnings releases can move specific sectors if there are guidance revisions, profit warnings, or changes in margins. The market is rewarding cash-flow visibility and penalizing any slowdown in revenue that is not accompanied by cost discipline.

Base case (60%): a low-intensity earnings week, with limited impact and macro and rates leadership. Bullish scenario (20%): no corporate surprises and an extension of the rebound toward small caps and cyclicals. Adverse scenario (20%): an isolated disappointment reopens valuation doubts and slows the advance of the indices.

Macro

The main event next week will be the release of the Fed minutes on Wednesday, July 8. The market will look for two things: how much weight the committee gave to persistent inflation and how much concern there is about the employment slowdown ahead of summer. On Thursday, the market will also get the U.S. initial jobless claims reading on Thursday, July 9.

Outside the U.S., China will release CPI and PPI on Thursday, July 9. In Europe, the market will have the ECB minutes on Thursday, July 9. It is an important combination because it brings together growth, inflation, and terminal rate expectations in the three most relevant areas for global risk.

Base case (55%): the Fed minutes confirm caution and China does not worsen, which supports equities without triggering a strong new surge in yields. Bullish scenario (25%): a more dovish tone in the minutes and sufficiently stable Chinese data to favor industrials, European luxury, and small caps. Adverse scenario (20%): more hawkish minutes than expected or weak Chinese data that raise doubts about global growth.

Geopolitics

Geopolitics will continue to feed through energy and defense. The recent reaction in gold and the sensitivity of crude show that the market is maintaining a monitoring premium on the Middle East, although without yet translating it into a clear break in risk appetite. The asset to watch will be Brent, because any additional tension would first show up in implied inflation and central bank expectations.

There will also be attention on U.S. trade policy and on any message regarding tariffs or negotiations with China. In a market at highs, these issues matter more for their ability to move expectations for margins, supply chains, and dollar behavior than for the initial headline.

Base case (50%): no material escalation and Brent contained, allowing the market to prioritize macro and earnings. Bullish scenario (20%): additional easing in geopolitical flashpoints and lower crude, supporting consumer and transport sectors. Adverse scenario (30%): higher Middle East risk or renewed trade tension, with oil rising, pressure on bonds, and better relative performance from gold and defense.

Conclusion

The week ends with an unusual but constructive mix: weaker employment, contained volatility, and stock markets still near highs. That combination only holds if the market continues to believe that slower growth will not lead to a sharp deterioration in earnings. That is why next week will be less about headlines and more a test of consistency. If the Fed minutes show serious concern about persistent inflation, or if oil rises sharply, the compression in risk premiums could reverse quickly. The base case is invalidated if the 10-year Treasury breaks higher while small caps stop participating and the VIX moves out of the 15–16 zone with follow-through.

In that context, the way to navigate the market remains to balance equity exposure with reasonable hedges. Gold remains useful as protection against monetary policy mistakes and geopolitical shocks. The 10-year Treasury may regain appeal if the market starts to price in weaker growth. In equities, it is worth watching whether the Russell 2000 confirms the better relative tone, because that would be a healthier signal than an advance supported only by large technology stocks. The key is not to chase price, but to check whether the market broadens participation without excessively damaging the relationship between valuation and rates.

This article is general financial information and does not constitute investment advice.