Stocks Hit as Jobs Fuel Bets Fed Will Stay on Hold: Markets Wrap

(Bloomberg) — Stocks got hammered and bond yields climbed alongside the dollar, with traders slashing their bets for Federal Reserve rate cuts this year after a blowout jobs report.

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Equities erased their 2025 advance, with the S&P 500 dropping over 1% toward the lowest since Nov. 5. A slide in Treasuries briefly drove 30-year yields above 5%. The greenback rose against most of its major counterparts. Swaps are pricing in about 30 basis points of total Fed cuts this year, compared to almost 40 earlier Friday. Oil surged — raising concern about inflation — as the US ratcheted up sanctions against Russia.

The US economy in December added the most jobs since March and the unemployment rate unexpectedly fell, capping a surprisingly strong year. Separate data fueled concerns about stubborn price pressures, with consumers’ longer-term inflation expectations rising to the highest level since 2008.

“Investors may want to brace themselves for more volatility as the market recalibrates expectations for fewer 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 dropped 1.4%. A gauge of the “Magnificent Seven” megacaps slid 0.8%. The Russell 2000 index of small firms lost 2.4%. Wall Street’s favorite volatility gauge — the VIX — surged to around 20.

The yield on 10-year Treasuries advanced seven basis points to 4.76%. The Bloomberg Dollar Spot Index rose 0.5%.

Following Friday’s slid jobs data, economists at some big banks revised their forecasts for additional Fed rate cuts.

Bank of America Corp., which previously expected two quarter-point reductions this year, no longer expects any, and said there’s a risk the next move is a hike. Citigroup Inc. — whose rate-cut outlook is among Wall Street’s most hopeful — still looks for five quarter-point cuts, but says they’ll start in May. Goldman Sachs Group Inc. sees two cuts this year versus three.

“The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March,” said Seema Shah at Principal Asset Management. “For global bonds, the strength of the US jobs report just adds to their challenges. The peak for yields has not yet been reached.”

Treasury yields have been climbing since the Fed in September kicked off its rate cutting cycle. A resilient US economy fueled the moves further, leaving the 10-year yield more than 100 basis points higher than it was before the debut rate reduction. All that has forced bond investors to contend with the possibility that the benchmark yield could soon return to 5% — a level that has been breached only a handful of times over the past decade.

The move higher in Treasury yields over the past month has largely been driven by real rates — suggesting that higher growth expectations have been the dominant driver behind the selloff, according to Gennadiy Goldberg at TD Securities.

Neil Birrell at Premier Miton Investors says that any hope of a quiet start to the year has well and truly disappeared now.

“Good news for the strength of the economy and bad news for those hoping for interest-rate cuts, as inflation will stay bang 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 equities. Could a 5% yield on the 10-year Treasury really be hit?”

For investors hoping equity markets would broaden from the megacap tech names, the latest data didn’t do them any favors, according to Lara Castleton at Janus Henderson Investors.

“People are now going to get concerned that the Fed will not be able to cut at all, pressure is building on the Fed,” said Guy Stear at the Amundi Investment Institute. “Yields will continue to rise towards 5% in the next couple of months, putting pressure on equity markets unless you get a very strong first-quarter earnings season.”

To Bret Kenwell at eToro, while the market may not love the latest jobs data, there are a lot of worse things 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 that means rate-cut expectations take a step back,” Kenwell said.

Indeed, it looks like we are back in a world where good news is bad news, said Scott Helfstein at Global X. But that seems shortsighted, he noted.

“We believe that companies can deliver on lofty earnings expectations this year powered by automation technologies like AI and deregulation, and that will drive equities rather than the Fed,” he said.

The latest data raises the stakes for inflation gauges to be released next week. December consumer price index data to be released Jan. 15 are forecast to show a third straight month of acceleration, to a rate of 2.9%.

“The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish,” said Ellen Zentner at Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even a downside surprise in those numbers probably won’t be enough to get the Fed to cut rates any time soon.”

Corporate Highlights:

Tesla Inc. refreshed its best-selling Model Y, applying a design element of the polarizing Cybertruck to its high-volume sport utility vehicle.
Nvidia Corp. criticized new chip export restrictions that are expected to be announced soon, saying the White House was trying to undercut the incoming Trump administration by imposing last-minute rules.
Delta Air Lines Inc.’s profit beat Wall Street’s estimates for the final months of 2024, buoyed by gains in both the US market and overseas. The company doesn’t expect the momentum to slow in the new year.
Walgreens Boots Alliance Inc. reported quarterly sales that surpassed Wall Street’s expectations, spurring the shares and easing pressure on the drugstore chain as it mulls strategic options including a sale.
Constellation Energy Corp. agreed to acquire closely held Calpine Corp. for $16.4 billion in a deal that will create the largest fleet of US power stations.
The Walt Disney Co., Fox Corp. and Warner Bros. Discovery Inc. scrapped plans to create a joint sports streaming service just days after settling a lawsuit brought against the three companies alleging the platform would squelch competition.
Chip-design company Synopsys Inc. won conditional approval from the European Union’s merger watchdog for its planned $34 billion buyout of software developer Ansys Inc, after addressing the regulator’s fears over the deal.

Some of the main moves in markets:

Stocks

The S&P 500 fell 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 1.3%
Bloomberg Magnificent 7 Total Return Index fell 0.8%
The Russell 2000 Index fell 2.4%

Currencies

The Bloomberg Dollar Spot Index rose 0.5%
The euro fell 0.6% 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% to $3,294.77

Bonds

The yield on 10-year Treasuries advanced seven basis points to 4.76%
Germany’s 10-year yield advanced three basis points to 2.59%
Britain’s 10-year yield advanced three basis points to 4.84%

Commodities

West Texas Intermediate crude rose 3.1% to $76.20 a barrel
Spot gold rose 0.9% to $2,691.69 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Natalia Kniazhevich and Julien Ponthus.