Wall Street is increasingly betting the latest jobs report will take a Fed rate hike off the table and give stocks room to climb.

The Bureau of Labor Statistics' July labor market report showed the economy lost 23,000 jobs, far short of expectations. The unemployment rate fell to 4.1% as labor force participation dropped to a near-pandemic low.

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"The report suggests that the economy is seemingly slipping back toward the 'no hire, no fire' narrative that characterized the labor market through much of 2025," said Jim Baird, chief investment officer with Plante Moran Financial Advisors, in a note on Friday.

The latest report shows the three-month rolling average of job gains has fallen to just 20,000, while the six-month average has declined to a weak 44,000, noted Ameriprise chief economist Russell Price.

"There were many moving parts, but very little to like about this report," said Price on Friday. "If the job market falters, consumers and the economy might not be far behind."

Treasury yields fell on Friday following the report, reversing gains from earlier in the week when traders had signaled that policymakers might be behind the curve in their fight against inflation.

Strategists said the weak labor numbers give the Fed cover to hold rates steady despite sticky inflation, particularly as wage growth came in softer than expected.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

"To the point of the wage inflation, I think this really solidifies our view that the Fed is going to stay on hold this year," UBS's Leslie Falconio told Yahoo Finance.

Following the jobs report, implied odds of a Fed rate hike in 2026 fell to 56% from 63% on Polymarket, reducing the risk of higher borrowing costs and their impact on equities.

Stocks jumped on Friday with the Dow, S&P 500, and Nasdaq all posting weekly wins. The gains were driven by large tech stocks as Nvidia (NVDA) surged 10% for the week. Microsoft (MSFT) and Meta (META) also gained 8% and 7%, respectively.

"In terms of what this does to the stock market, it's probably positive in that it reduces the probability of a rate hike in September," said Amber Fairbanks, Impax Asset Management portfolio manager.

Fairbanks still sees upside in the AI trade, but cautions on selectivity.

"I think AI is still an attractive trade," she said. "I do think that we have to be a little bit more picky in those companies that are really benefiting from a fundamental perspective, not just to benefit from a narrative perspective."