U.S. equities look to finish the post-Labor Day stretch mostly higher, with the S&P 500 setting a record yesterday. Treasury yields drifted lower across the curve and the dollar was broadly steady, a backdrop that supported a risk-on bias in large-cap tech and AI infrastructure while leaving more cyclical corners of the market mixed.

The macro calendar began with manufacturing still in contraction but edging in the right direction. August’s ISM Manufacturing PMI remained below 50, yet the forward-looking new-orders subindex ticked back into expansion for the first time in months.

Services told a complementary story. The ISM Services PMI accelerated to the best reading in half a year, with business activity and new orders comfortably above 50. The employment component, however, lagged, which is consistent with firms protecting margins by adjusting hiring while leaning on productivity and pricing discipline. Taken together, the surveys depict an economy still expanding, with growth increasingly carried by services and capex tied to data centers, networking, and AI.

Labor undercurrents heading into today’s jobs report were already softer. Weekly jobless claims nudged higher, the ADP estimate of private payrolls cooled sharply, and July’s JOLTS openings slipped to a ten-month low. The tally of unemployed workers is beginning to exceed available positions, leading to an unmistakable sign that labor demand is normalizing. None of those signals screamed recession, but all pointed to slower hiring velocity and a bit less bargaining power for workers than earlier in the year.

Despite consumption driving roughly 70% of U.S. GDP, a cooling job market doesn’t instantly derail spending. However, it can temper the impulse for discretionary outlays and big-ticket purchases, especially if wage growth is moderating. The results of today’s report may be just enough to give policymakers cover for a quarter-point rate cut later this month, less to “stimulate” than to align policy with slower nominal growth and tame inflation momentum.

The bond market is coming around to this view. Short-term rates continue to decline as investors price in an earlier start to monetary easing while long-term yields are falling at a slower pace and, more importantly, remain above year-ago levels. The result is a steepening yield curve.

One interpretation is that the market expects inflation to be more persistent even as the policy rate comes down. If the Fed cuts the front end while long-run inflation term premium stays firm, the curve naturally steepens.

Another, equally useful lens is the “bull steepener” dynamic where short rates fall faster than long rates, which can be a constructive signal for equities and the broader economy. A bull steepener often accompanies improving growth expectations or a soft-landing setup where policy shifts from restrictive toward merely neutral without reigniting inflation.

So far this week the message from the market is clear. Economic activity is still expanding, particularly in services, but labor is cooling enough to keep the Fed on track for a September rate cut. The mix of moderating growth without fresh inflation stress has kept risk assets buoyant, nudged yields down, and left investors laser-focused on August payrolls data to calibrate the size and pace of any policy easing from here.

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