Market Recap: Stocks Tumble as Strong Jobs Report Dampens Rate Cut Hopes
The U.S. stock market closed sharply lower on Friday, January 10, 2025, as a stronger-than-expected jobs report dampened hopes for imminent interest rate cuts by the Federal Reserve. The robust employment data sparked concerns that the central bank might maintain higher rates for longer, leading to a broad selloff across major indices.
Market Performance
The Dow Jones Industrial Average (DJI) plummeted 506.84 points, or 1.2%, to close at 42,128.36. The S&P 500 (SPX) fell 1.1% to 5,853.07, while the Nasdaq Composite (IXIC) dropped 1.2% to 19,244.53. The small-cap Russell 2000 (RUT) index was hit particularly hard, declining 1.7% as investors grew wary of smaller companies’ vulnerability to interest rate fluctuations.
Jobs Report Surprises
The Labor Department reported that the U.S. economy added 256,000 jobs in December, significantly surpassing economists’ expectations of 160,000. The unemployment rate unexpectedly fell to 4.1%, beating forecasts of 4.2%. This robust job growth, while indicative of a healthy economy, raised concerns about potential inflationary pressures and the Fed’s monetary policy trajectory.
Interest Rate Expectations Shift
Following the jobs report, market expectations for interest rate cuts in 2025 were dramatically scaled back. Traders now anticipate just 30 basis points of rate cuts this year, down from 45 basis points before the data release. The probability of a rate cut at the Fed’s January meeting plummeted to 2.7%, according to the CME FedWatch Tool.
Bond Yields Surge
The strong employment data triggered a selloff in the bond market, pushing yields higher. The yield on the benchmark 10-year U.S. Treasury note jumped to 4.762%, its highest level since fall 2023. This surge in yields further pressured equity valuations and contributed to the stock market decline.
Sector Performance
All 11 S&P 500 sectors finished in negative territory, with technology and small-cap stocks bearing the brunt of the selloff. Chip stocks were particularly weak, with Nvidia (NVDA) and Advanced Micro Devices (AMD) dropping 1.1% and 2.2% respectively, amid reports of potential new U.S. export regulations.
Corporate News
Despite the broader market decline, Taiwan Semiconductor Manufacturing Company (TSM) saw its U.S.-listed shares rise 1.3% after reporting better-than-expected fourth-quarter revenue, buoyed by strong demand for artificial intelligence chips.
Adani Wilmar shares slid 9% as the company’s promoter announced plans to divest a 20% stake through an offer for sale (OFS).
Upcoming Market Events
Investors are bracing for a busy week ahead, with several key events on the horizon:
1. Earnings season kickoff: Major financial institutions, including JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), are set to report their fourth-quarter results next week.
2. Consumer Price Index (CPI) data: The December CPI report, due next Wednesday, will provide crucial insights into inflation trends.
3. Producer Price Index (PPI): Thursday’s PPI release will offer additional perspective on inflationary pressures at the wholesale level.
4. University of Michigan Consumer Sentiment: Friday’s preliminary January report will gauge consumer confidence and inflation expectations.
Looking Ahead
As the market digests the implications of the strong jobs report and reassesses the Fed’s potential actions, volatility is expected to persist. Investors will closely monitor upcoming economic data and corporate earnings for further clues about the economy’s trajectory and the Fed’s monetary policy stance.
The S&P 500 is now down nearly 3% from its record high hit a month ago, reflecting growing concerns about inflation and the potential impact of the incoming Trump administration’s policies on trade and the broader economy.
As we move further into 2025, market participants will be keenly watching for signs of economic resilience, inflationary pressures, and any shifts in the Federal Reserve’s approach to monetary policy. The interplay between strong economic data and interest rate expectations will likely continue to drive market sentiment in the coming weeks.
