U.S. Stocks Slide as Strong Jobs Report Sparks Inflation Fears

U.S. Stocks Slide as Strong Jobs Report Sparks Inflation Fears

U.S. stocks took a sharp downturn as a surprisingly strong jobs report for December raised concerns about inflation and dashed hopes for aggressive Federal Reserve rate cuts in 2025. The S&P 500 erased its gains for the year, reflecting a challenging start for equities amid renewed economic uncertainty.

Major indexes decline sharply

At 2:00 p.m., the major U.S. indexes were deep in the red:

• Dow Jones Industrial Average: Fell 482.30 points (1.13%) to 42,154.37.
• S&P 500: Dropped 55.59 points (0.94%) to 5,862.66.
• Nasdaq Composite: Lost 187.52 points (0.96%) to 19,291.03.
• Russell 2000: The small-cap index fell 2.14%.

Ten of the S&P 500’s 11 sectors declined, with financials and real estate leading the losses, each down roughly 2%. The benchmark index is now down about 4% from its record high reached last month, capping a second consecutive week of losses.

Jobs report stokes inflation fears

The Labor Department’s report showed unexpected strength in the labor market, with job growth accelerating in December and the unemployment rate falling to 4.1%.

“This stronger labor market makes it much more difficult for stocks in the short term,” said Robert Pavlik, senior portfolio manager at Dakota Wealth. The upbeat data heightened expectations that the Fed would delay rate cuts, further pressuring equities.

According to CME Group’s FedWatch Tool, traders now anticipate the Fed’s first rate cut in June, with no further changes expected for the rest of the year. However, BofA Global Research raised the possibility of a rate hike, complicating the outlook.

Bond yields and consumer sentiment weigh on markets

Adding to market stress, the yield on the 30-year Treasury note reached 5%, its highest since November 2023, signaling tighter financial conditions. Wall Street’s fear gauge, the VIX, climbed to a two-week high, reflecting increased market volatility.

The University of Michigan’s consumer sentiment index dropped to 73.2 in January from the previous month, underscoring concerns about economic uncertainty heading into 2025.

Sector and stock-specific movements

• Tech stocks: Nvidia dropped 2.61% following reports of potential new U.S. export regulations targeting chipmakers.
• Energy sector: Constellation Energy surged 26% after announcing its $16.4 billion acquisition of Calpine Corp.
• Retail sector: Walgreens Boots Alliance rose 27.49% after reporting a strong quarterly profit, while Constellation Brands fell 16.1% after cutting its annual sales and profit forecasts.

Market breadth and technical indicators

Declining issues outnumbered advancing ones by a ratio of 3.74-to-1 on the NYSE and 3.28-to-1 on the Nasdaq. The S&P 500 recorded six new 52-week highs and 32 new lows, while the Nasdaq posted 34 new highs and 193 new lows.

Inflation fears dominate outlook

Fresh inflation worries have taken center stage, with the Fed issuing a cautious forecast on monetary easing. Chicago Fed President Austan Goolsbee stated that while there is no evidence of an overheated economy, a stronger labor market could keep the Fed on hold longer than expected.

Conclusion

With a strong jobs report adding to inflation fears and bond yields rising, U.S. equities face a challenging environment in early 2025. As the Federal Reserve remains cautious about monetary easing and global economic uncertainty looms, investors will need to navigate heightened volatility and shifting market dynamics in the weeks ahead.