(Bloomberg) — Stocks took a hit and bond yields rose along with the dollar, with traders cutting their bets on an interest rate cut by the Federal Reserve this year after a surprise jobs report.
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Stocks erased the advance they made in 2025, with the S&P 500 falling nearly 2% and breaking a key technical level. A decline in Treasuries briefly sent 30-year yields above 5%. The dollar rose against most of its major counterparts. The swaps are priced at about 30 basis points of the Fed’s total cuts this year, compared with about 40 basis points earlier Friday. Oil prices rose – raising concerns about inflation – as the United States imposed tough sanctions on Russia’s energy industry.
In December, the US economy added the most jobs since March, and the unemployment rate unexpectedly fell, concluding a surprisingly strong year. Separate data fueled concerns about stubborn price pressures, with consumers’ long-term inflation expectations rising to the highest level since 2008.
“Investors may want to brace for more volatility as the market recalibrates expectations for lower cuts,” said Gina Bulfin of Bulfin Wealth Management Group.
The S&P 500 fell 1.8%, breaching its 100-day moving average. The Nasdaq 100 index fell 2.1%. The Dow Jones Industrial Average fell 1.7%. The Magnificent Seven Megacaps metric fell 1.8%. The Russell 2000 small-cap index lost 2.7%. Wall Street’s favorite measure of volatility – the VIX – rose to around 20.
The yield on the 10-year Treasury note rose seven basis points to 4.76%. The Bloomberg Dollar Spot Index rose 0.5%.
“The key question now is how much pressure the markets can take before giving in,” said Florian Elbo, of Lombard Odier Investment Management.
Economists at some major banks revised their expectations for additional Fed rate cuts in response to stronger-than-expected employment data.
Bank of America Corp., which previously expected cuts of a quarter of a percentage point this year, no longer expects any and said there is a risk that the next step will be to raise interest rates. Citigroup Inc. — whose rate-cut forecasts are among the most optimistic on Wall Street — is still eyeing five percentage point cuts, but says they will begin in May. Goldman Sachs Group is witnessing two cuts this year compared to three cuts.
“The Fed could be very comfortable staying in January and will need some meaningful bearish inflationary surprises or setbacks in the upcoming jobs reports to wake it up from the March interest rate slump,” said Seema Shah of Principal Asset Management. “For global bonds, the strength of the US jobs report adds to the challenges facing them. Peak yields have not been reached yet.”
Any hope of a quiet start to the year is now gone, says Neil Birrell, of Premier Miton Investors.
“Good news for the strength of the economy and bad news for those hoping for lower interest rates, as inflation will remain at the top of the Fed’s agenda now,” he noted. “The jump in bond yields looks set to continue, which is bad news for stocks. Is a 5% return on 10-year Treasuries really achievable?
“People will now worry that the Fed won’t be able to cut at all, and the pressures are mounting on the Fed,” said Jay Steer of the Amundi Investment Institute. “Yields will continue to rise toward 5% in the next couple of months, putting pressure on equity markets unless we have a very strong earnings season in the first quarter.”
For investors hoping stock markets will expand from giant tech names, the latest data has done them no favors, according to Lara Castleton of Janus Henderson Investors.
For eToro’s Brett Kenwell, while the market may not like the latest jobs data, there are plenty of things worse than a strong labor market.
“Without a strong foundation in the labor market, the whole thing falls apart. Investors need to keep that in mind — even if it means expectations of interest rate cuts take a step back,” Kenwell said.
In fact, we seem to have returned to a world where good news is bad news, said GlobalX’s Scott Helfstein. But he noted that this seems short-sighted.
“We believe companies can achieve their lofty earnings expectations this year supported by automation technologies like artificial intelligence and deregulation, and that will drive stocks rather than the Fed,” he said.
The latest data increases the risks related to inflation measures that will be released next week. December CPI data, which will be released on January 15, is expected to show an acceleration for the third month in a row, at 2.9%.
“The surprisingly strong jobs report certainly won’t make the Fed less hawkish,” said Ellen Zentner of Morgan Stanley Wealth Management. “All eyes will now be on next week’s inflation data, but even a downward surprise in those numbers probably won’t be enough to prompt the Fed to cut interest rates any time soon.”
The most prominent features of the company:
Tesla Inc. Updated its best-selling Model Y, it applied a design element from the polarizing Cybertruck to its full-size SUV.
Nvidia Corp criticized new chip export restrictions expected to be announced soon, saying the White House is trying to undermine the incoming Trump administration by imposing last-minute rules.
Delta Air Lines’ earnings beat Wall Street estimates for the final months of 2024, helped by gains in both the US market and abroad. The company does not expect momentum to slow in the new year.
Walgreens Boots Alliance Inc. announced It reported quarterly sales that exceeded Wall Street expectations, spurring stocks and easing pressure on the pharmacy chain as it considers strategic options including selling.
Constellation Energy Corp. has agreed to acquire Calpine Corp. for $16.4 billion to create the largest fleet of U.S. power plants.
Walt Disney Co., Fox Corp. and Warner Bros. Discovery Inc. canceled plans to create a joint sports streaming service just days after settling a lawsuit against the three companies claiming the platform would crush competition.
Some key movements in the markets:
Stocks
The S&P 500 was down 1.8% as of 12:06 PM New York time
The Nasdaq 100 index fell 2.1%.
Dow Jones Industrial Average fell 1.7%
The Stoxx Europe 600 index fell by 0.8%.
MSCI World Index fell 1.7%
The Bloomberg Magnificent 7 Total Return Index fell 1.8%.
The Russell 2000 index fell 2.7%.
Currencies
The Bloomberg Dollar Spot Index rose 0.5%.
The euro fell 0.6 percent to $1.0238
The British pound fell 0.8 percent to $1.2209
The Japanese yen rose 0.3 percent to 157.74 yen to the dollar
Cryptocurrencies
Bitcoin rose 1.6% to $93,603.48
Ethereum rose 1.3% to $3,249.69
Bonds
The yield on the 10-year Treasury note rose seven basis points to 4.76%.
The yield on German 10-year bonds rose three basis points to 2.59%.
The UK 10-year bond yield rose three basis points to 4.84%.
Goods
West Texas Intermediate crude rose 3.1% to $76.22 a barrel
Gold rose in spot transactions by 1 percent to $2,693.12 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Natalia Knyazevich and Julian Ponthus.
