The U.S. economy added a mere 57,000 jobs in June 2026, according to the latest non-farm payrolls report. This figure was less than half of the consensus forecast of 110,000 to 114,000 and marked a substantial drop from May's revised 172,000. Yesterday's ADP report also showed private-sector employment increasing by only 98,000 in June, short of the 118,000 expectation. The weak jobs data immediately impacted markets, leading traders to reprice Federal Reserve rate hike expectations for 2026 from one or two hikes down to zero to one. This repricing occurred within minutes of the release.
The market reaction included an immediate drop in Treasury yields, with the 2-year U.S. Treasury yield falling from about 4.191% to 4.108%, and the 10-year yield declining from around 4.505% to 4.461%. Equity futures rallied, not necessarily due to economic optimism, but because lower Treasury yields compress the discount rate in stock valuations, mechanically increasing the present value of future earnings. Falling oil prices on the same day further amplified the disinflationary signal, providing additional impetus for the yield movement.
The 2-year Treasury yield saw a sharper decline than the 10-year due to its sensitivity to near-term Fed policy shifts. The probability of a Fed rate hike at its meeting later this month decreased to around 20% from 33% before the data release. By March 2027, the Fed is now expected to raise rates fewer than two times, with individual hikes not exceeding 25 basis points. Sectors like REITs, utilities, housing-linked equities, and long-duration growth stocks are expected to benefit if this repricing holds. Federal Reserve officials, including Mary Daly and Kevin Warsh, acknowledged easing inflationary pressures but maintained a data-dependent policy stance.
