(Bloomberg) — Stocks tumbled and bond yields rose against the dollar, as traders cut their prices for Federal Reserve rate cuts this year after reporting job losses.
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Stocks erased their 2025 gains, with the S&P 500 falling more than 1% to its lowest since Nov. 5. The slide in Treasuries has sent the 30-year yield above 5 percent. The greenback stood up to most of his fellow majors. Swaps are pricing in 30 basis points of the Fed’s total rate cuts this year, up from nearly 40 last Friday. Oil rose as the U.S. lifted sanctions on Russia — raising inflation concerns.
In December, the U.S. economy added more jobs than in March and the unemployment rate fell sharply, marking a surprisingly strong year. As consumers’ long-term inflation expectations rose to their highest level since 2008, various data about stubborn inflation have fueled concerns.
“Investors may want to brace themselves for more volatility as the market recalibrates expectations for smaller cuts,” said Gina Bolvin at Bolvin Wealth Management Group.
The S&P 500 fell 1.3%, briefly breaching its 100-day moving average. The Nasdaq 100 sank 1.4%. The Dow Jones industrial average fell 1.4 percent. The “Magnificent Seven” megacaps benchmark slipped 0.8%. The Russell 2000 index of small firms lost 2.4 percent. Wall Street’s favorite gauge of volatility – the VIX – rose to around 20.
The 10-year Treasury yield rose seven basis points to 4.76 percent. The Bloomberg Dollar Spot Index added 0.5 percent.
Economists at some of the biggest banks revised up their forecasts for more Fed rate cuts following Friday’s slick jobs data.
Bank of America, which previously expected a two-quarter-point decline this year, expects nothing, and there are fears that the next move could be a hike. Citigroup Inc. — His outlook for rate cuts is among the most optimistic on Wall Street — he still wants five quarter-point cuts, but says they will start in May. Goldman Sachs Group Inc. has seen two cuts this year, compared with three.
The Fed may be too comfortable staying in January to wake up in March and some meaningful low inflation surprises or changes will lead to a wake-up call in March, Seema Shah said. “For global bonds, the strength of the US jobs report adds to their challenges. Peak yields have yet to be reached.
Treasury yields have been rising since the Fed began its rate-cutting cycle in September. A resilient U.S. economy further fueled the moves, sending the 10-year yield up more than 100 basis points ahead of its first slowdown. That level has only been breached a handful of times over the past decade, forcing bond investors to grapple with the possibility that the benchmark yield could soon return to 5%.
According to Gennadiy Goldberg at TD Securities, the sharp move in Treasuries last month was driven by real rates – suggesting that higher growth expectations were the main driver behind the sell-off.
Neil Birrell at Premier Mitton Investors said any hope of a quiet start to the year had now effectively disappeared.
“Good news for the strength of the economy and bad news for those hoping for a rate cut, as inflation is now high on the Fed’s agenda,” he noted. “The jump in bond sales looks set to continue, which is bad news for equities. Can a 5% yield on the 10-year Treasury really be hit?
The latest data didn’t do any favors for investors expecting equity markets to expand from megacap tech names, says Lara Castleton at Janus Henderson Investors.
“People are now worried about whether the Fed will cut at all, putting pressure on the Fed,” said Guy Steer at the Amundi Investment Institute. “Yields will continue to grow around 5% over the next two months, which will put pressure on equity markets unless they have a very strong first-quarter earnings season.”
For Brett Kenwell at eToro, while the market may not like the latest job data, there are worse things than a strong job market.
“If there is no solid base in the labor market, everything will collapse. Investors should take that into account – even if it means that reasonable expectations will take a step back,” Kenwell said.
As Scott Helfston said at Global X, it looks like we’re back in a world where it’s really good news. But this seems short-sighted, he said.
“We believe that companies, supported by automation technologies such as AI and deregulation, will be able to deliver higher revenue prospects this year and that will lead to equity rather than the Fed,” he said.
The latest data will raise inflation benchmarks for next week’s release. December’s consumer price index, released on January 15, is forecast to show a 2.9% pace for the third consecutive month.
“A surprisingly strong jobs report does not make the Fed a hawk,” said Ellen Zentner at Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even the surprise in those numbers may not be enough to prompt the Fed to cut rates any time soon.”
Corporate Highlights:
Tesla Inc. It has refreshed the best-selling Model Y by applying the polarizing Cybertruck design element to its high-volume sports utility vehicle.
Nvidia Corp. has criticized new chip export restrictions expected to be announced soon, saying the White House is trying to undermine the upcoming Trump administration by issuing last-minute rules.
Delta Air Lines beat Wall Street estimates in the final months of 2024, driven by gains in the U.S. market and overseas. The company does not expect the pace to slow down in the new year.
Walgreens Boots Alliance Inc. It reported quarterly sales that beat Wall Street expectations, boosting shares and easing pressure on the drugstore chain as it held strategic options, including the sale.
Constellation Energy Corp. has agreed to acquire closely held Calpine Corp. for $16.4 billion; With this deal, it will create the largest number of US power plants.
The Walt Disney Co.
Chip designer Synopsis Inc has received conditional approval from the European Union’s merger watchdog to buy software developer Ansys Inc for $34 billion after the regulator allayed concerns over the deal.
Some of the major activities in the markets are-
Shares
The S&P 500 was down 1.3% as of 1:17 p.m. New York time
The Nasdaq 100 fell 1.4%
The Dow Jones Industrial Average fell 1.4%
The MSCI world index fell by 1.3%
The Bloomberg Magma 7 Total Return Index fell 0.8%
The Russell 2000 index fell 2.4 percent
Currencies
The Bloomberg Dollar Spot Index rose 0.5 percent.
The euro fell 0.6 percent to $1.0238
The British pound fell 0.8% to $1.2210
The Japanese yen rose 0.2% to 157.90 per dollar.
Cryptocurrencies
Bitcoin rose 3.4% to 95,211.42
Ether rose 2.7 percent to $3,294.77.
Bonds
The 10-year Treasury yield rose seven basis points to 4.76 percent.
Germany’s 10-year yield rose three basis points to 2.59%.
Britain’s 10-year yield rose three basis points to 4.84%.
Goods
West Texas Intermediate crude rose 3.1 percent to $76.20 a barrel.
Spot gold rose 0.9 percent to $2,691.69 an ounce.
This story was produced with the help of Bloomberg Automation.
–With assistance from Natalia Kniashevich and Julien Pontus.
