Market Turmoil: Strong Jobs Report Sparks Rate Hike Fears
The US stock market took a hit on Friday as investors reacted to a surprisingly strong December jobs report, which raised concerns about the path of interest rates this year. The Dow Jones Industrial Average plummeted 1.5%, or over 600 points, while the S&P 500 fell 1.6%. The tech-heavy Nasdaq Composite tumbled 1.8%, leading the sell-off.
Labor Market Strength Raises Rate Hike Concerns
The December nonfarm payrolls report showed a very healthy labor market, with the US economy adding over 250,000 jobs in the month, while the unemployment rate fell to 4.1%. While this news is typically welcomed, it also sparked fears that the Federal Reserve may keep interest rates higher for longer, potentially slowing down the economy.
Fed’s Interest Rate Policy Back in Spotlight
Fresh jobs data threw the Fed’s interest rate policy back into the spotlight, shutting the door on a rate cut to start the year. Expectations of a rate cut in March fell to around 25%, down from about 44% a day ago, according to the CME FedWatch Tool. Fed officials have already expressed concern with sticky inflation, giving them more reasons to approach interest rate policy with caution.
Corporate Earnings: A Mixed Bag
Investors welcomed a clutch of upbeat earnings to start the year. Walgreens posted a first-quarter profit beat, a sign the healthcare company’s turnaround efforts are paying off. Shares rose over 20%. Delta stock jumped more than 9% after a record year for travel fueled a fourth-quarter profit beat and record annual revenue. However, Nvidia shares came under pressure in light of new chip export curbs expected to be announced by the White House soon.
Inflation Fears Linger
Investors were also hit with fresh data that showed consumers are more pessimistic about future pricing pressures. According to a new reading from the University of Michigan’s consumer sentiment index, year-ahead inflation expectations rose from 2.8% last month to 3.3% this month. Long-run inflation expectations also ticked up from 3% in December to 3.3% in January.
What’s Next?
Next week, investors will get a fresh check on inflation with CPI data set to be released. The big banks are also on deck to post quarterly results, offering insights into credit conditions and spending heading into the new year. Additionally, the Supreme Court is set to rule on the fate of TikTok’s US operations, which could have significant implications for the social media landscape.
Stocks to Watch
Some of the stocks leading the charge on Friday included Delta Air Lines, which rose over 8% after exceeding analyst expectations for both revenue and earnings in its fiscal fourth quarter. Nvidia fell more than 2% in afternoon trading, while industry peer AMD fell over 4%. Meta rose 3% following the conclusion of oral arguments before the Supreme Court on the fate of TikTok’s US operations. Walgreens Boots Alliance surged nearly 30% after beating Wall Street estimates on its adjusted earnings per share and sales for the first quarter of fiscal year 2025.
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