Strong Earnings Can’t Save the Stock Market From Jobs and Tariffs

The New York Stock Exchange in the Financial District. (Spencer Platt/Getty Images)

America’s biggest companies are racing full speed ahead, but the economy could be headed for trouble. That’s not a great mix for the stock market, which suffered its worst week since May.

A news-heavy week ended with the S&P 500 down 2.4%, the Dow Jones Industrial Average off 2.9%, and the Nasdaq Composite 2.2% in the red. The decline was particularly surprising because the largest U.S. companies, including Microsoft , Meta Platforms , and Apple, all posted blowout second-quarter earnings —enough, under normal conditions, to single-handedly lift the broader market.

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Created with Highcharts 9.0.1Utilities Select Sector SPDR ETFNASDAQ Composite IndexS&P 500 IndexDow Jones Industrial AverageJuly 28July 29July 30July 31Aug. 1-5.0-2.502.55.0%

But lately, those stocks are looking more like outliers than bellwethers. “What is good for the Magnificent Seven names is not necessarily good for the rest of the equity market,” wrote Michael O’Rourke, chief market strategist at JonesTrading.

The bigger problem for everyone outside of Big Tech is that the economy is looking shaky. U.S. payrolls grew by an anemic 73,000 in July, and the government revised the prior two months down by a total of 258,000 jobs. Fewer jobs were added over the past three months than in any three-month period since June 2020, in the midst of the Covid crash. Following the release of the report, President Donald Trump ordered the firing of the commissioner of the Bureau of Labor Statistics.

“The July jobs report officially confirms that the labor market has kicked into a lower gear,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

Outside of healthcare and education, the private sector added just 4,000 jobs in July, Evercore strategists noted. They expect more weakness ahead, as layoffs accelerate for federal workers following a Supreme Court decision that sided with Trump.

The positive thing about weak jobs reports like this one tends to be that they convince the Federal Reserve to cut interest rates to stimulate economic growth. Traders made big bets on Friday that a rate cut will come in September. In the past, this same dynamic has led to stock market gains on expectations that bad news from the jobs report would lead to good news from the Fed. That might not be the case this time thanks to Trump’s trade policy.

“Today’s release is best characterized as ‘bad news is bad news’ in our view,” Schulze wrote. “With job creation at stall speed levels and the tariff headwind lying ahead, there’s a strong possibility of a negative payroll print in the coming months, which may conjure up fears of a recession.”

Trump announced additional tariffs on several countries during the week, including 50% levies on some products from Brazil, 39% on Switzerland, and 35% on Canada. “Bottom line, let’s be honest here, volatile and costly trade policy has stalled decision-making on the part of companies with many hitting the pause button on hiring,” wrote Peter Boockvar, an independent economist and market strategist.

With the economy on pause, the stock market will have a hard time hitting play.

Write to Avi Salzman at avi.salzman@barrons.com