The U.S. labor market stumbled in August as the latest Non-Farm Payrolls (NFP) report revealed just 22,000 jobs added—well short of July’s 79,000 and the 75,000 projected by analysts. The weaker-than-expected figure unsettled Wall Street, prompting investors to reassess prospects for economic growth, consumer demand, and the Federal Reserve’s policy path.
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Meanwhile, the unemployment rate held steady at 4.3%. For equity markets, the disappointing data quickly shifted attention to economically sensitive names, with homebuilder D.R. Horton (DHI) and retailer Macy’s (M) emerging as focal points in last Friday’s trading session.
The U.S. labor report, published monthly by the Bureau of Labor Statistics, is one of the most closely watched indicators of U.S. economic vitality. It measures changes in employment across key industries and can serve as an early indicator for future monetary policy. When payroll growth falls short, it can dampen investor sentiment and raise concerns about slowing momentum in the broader economy. This entices lower interest rates, as well as early speculative bets as to how far those rates may fall.
Friday’s weaker-than-expected numbers did precisely that. Retailers, which rely heavily on consumer confidence and spending power, saw their shares wobble. Apparel giants like Gap Inc. (GAP) and department store operator Macy’s both traded higher early in the trading session before giving up their gains, reflecting fears that consumers might tighten their belts in the months ahead.
Macy’s finished the day higher, still buoyed by a strong quarterly earnings report that had jolted the stock 27% higher over the course of last week. Manufacturing stocks, too, faced headwinds as investors questioned whether slowing job creation might signal a broader cooling in industrial demand.
However, some of the most volatile price action took place among housing-related stocks. Shares of D.R. Horton, one of the nation’s largest homebuilders, initially dipped after the report but quickly reversed course as investors bet that the soft jobs data could prompt the Federal Reserve to consider interest rate cuts sooner rather than later. PulteGroup (PHM) stock also struggled early on amid whipsaw price action before investors went on the front foot late in Friday’s session, pricing in a dovish landscape by the end of the year.
For DHI and its peers, lower borrowing costs could be transformative. Higher interest rates, translating to higher mortgage rates—currently at their highest levels in more than a decade—have kept the housing market on lockdown since 2020.
As is typically the case, first-time buyers are priced out by higher rates and deposit requirements, while existing homeowners, many of whom are locked into ultra-low pandemic-era mortgages, have been reluctant to sell. This combination has stifled home sales and slowed renovation activity.
Indeed, almost all homebuilder stocks gained ~2% by midday trading, bucking the broader market’s downward bias as the S&P 500 (SPX) closed out the session ~1% lower on the day and week. The quickfire optimism so soon after such low labor sector figures underscores how rate-sensitive the U.S. economy and particular sectors are, especially those tied to discretionary consumer spending.
Market data indicate that homebuilders have been on a strong run over the past 3 months, posting almost identical performance rates over the past six months. With such a strong run-up, a Fed failure to cough up lower rates could spark an almighty selloff.
A dovish policy shift, or even a perception that one is en route, could spark renewed construction activity and revitalize the broader housing ecosystem, from building materials suppliers to appliance manufacturers. Or so that’s the hope from bullish speculators betting on a dovish Fed.
The chart below illustrates the relationship between the S&P 500 index and the U.S. Treasury yield curve. The top panel shows how the index climbed from early 2023 through September 2025, despite periods of volatility and pullbacks. The bottom panel highlights the current shape of the Treasury yield curve: short-term yields, such as the 1-month (4.33%) and 3-month (4.16%), are elevated compared to mid-term maturities, with yields dipping to a low of 3.55% at the 3-year mark.
The curve then rises again, reaching 4.81% at 20 years and 4.86% at 30 years. This produces a “U-shaped” or normalized curve, signaling that investors expect lower rates in the near-to-medium term before returning to higher yields in the long run. The Federal Funds Rate, marked at 4.33%, aligns closely with short-term yields, reinforcing the market’s anticipation that policy shifts will play a pivotal role in shaping future borrowing costs and equity valuation.
With such rosy sentiment circulating, Wall Street has quickly warned that the near-term outlook is not without risks. In other words, the dovish bulls may be preemptive and frankly, wrong. A more than 50,000 shortfall of new jobs could signal more profound economic distress than what the Fed can fix with its rate cut musket. It could ultimately prove to be the case that demand for new homes falls even if borrowing costs decline. It is, indeed, a delicate balancing act as the Fed attempts to bolster growth without destabilizing the market.
For the time being, last Friday’s jobs report has fired a warning shot across Wall Street, thereby widening the range of expectations for its next move. Retail and manufacturing names may struggle in the short term, but housing stocks like DHI could prove to be unexpected winners if interest rate relief arrives. As investors digest the implications, one thing is clear: the labor market sets the tempo for the U.S. economy, just like it ever was.
Is D.R. Horton a Good Stock to Buy?
Based on 15 Wall Street analysts offering 12-month price targets for D.R. Horton in the last three months, the outlook for DHI stock remains downbeat for the time being. However, rate cut expectations are likely to change next week as traders seek clues regarding the Fed’s next move. DHI’s current average stock price target of $157.08 represents ~13% downside over the next year.
