U.S. stocks took a hit on Friday after the release of the final 2024 jobs report, which showed stronger-than-expected hiring numbers, adding to concerns about inflation and the direction of interest rates.
The Dow Jones Industrial Average (^DJI) dropped by about 1.5%, losing over 600 points, while the S&P 500 (^GSPC) fell by 1.6%. The Nasdaq Composite (^IXIC), known for its tech-heavy focus, led the decline, dropping 1.8%. All three major indexes wiped out their year-to-date gains following Friday’s downturn.
The Surprising Jobs Report
The December nonfarm payrolls report revealed that the U.S. economy added more than 250,000 jobs during the month, significantly surpassing expectations. Additionally, the unemployment rate dropped to 4.1%. While these numbers show a healthy job market, the strong data has raised fears that the Federal Reserve may keep interest rates high for a longer period than anticipated.
The yield on the 10-year Treasury bond (^TNX) continued to rise on Friday, nearing 4.8%, marking its highest level since late 2023. This increase in bond yields reflects investors’ concerns about the Federal Reserve’s next steps regarding interest rates.
Rising Inflation Worries
Fresh data added to the market’s worries about inflation. The University of Michigan’s consumer sentiment index, released on Friday, showed that consumers expect inflation to rise in the year ahead. Inflation expectations for the next year increased from 2.8% to 3.3%, the highest level since May 2024. Long-term inflation expectations also ticked up from 3% in December to 3.3% in January.
This shift in inflation expectations is particularly troubling as the Federal Reserve has made it clear that they are in no rush to lower rates. Fed Chair Jerome Powell and other officials have indicated that they plan to slow down rate cuts. The market now expects no rate cuts before July 2025, as indicated by the CME FedWatch Tool.
Corporate Earnings and Tech Stock Challenges
Despite the broader market’s struggles, some companies reported positive earnings results. Walgreens (WBA) posted a strong first-quarter profit, reflecting the success of its turnaround efforts. Shares of Walgreens rose more than 20% following the news. Delta Air Lines (DAL) also saw a significant boost, with its stock jumping more than 9% after reporting a record year for travel and a fourth-quarter profit that exceeded expectations.
However, not all tech companies were in the green. Nvidia (NVDA) saw its shares pressured due to new chip export restrictions that are expected to be imposed by the U.S. government. These restrictions are likely to hurt Nvidia’s growth prospects in the near term.
What’s Next for the Market?
The latest jobs data has brought the Federal Reserve’s interest rate policies back into focus. With the economy showing strong job growth, the possibility of an interest rate cut in the near future has become less likely. Market expectations for the first rate cut of 2025 have been pushed back from May to July.
Investors will be closely watching the upcoming inflation data, with the Consumer Price Index (CPI) report set for release on Wednesday. This data could provide further clues about the Fed’s stance on interest rates in the months ahead.
On the corporate side, the big banks are gearing up to report their quarterly earnings. JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC), and Morgan Stanley are all set to report, offering investors valuable insights into credit conditions and consumer spending.
TikTok’s Court Battle
In other news, TikTok is facing a legal challenge in the U.S. The social media company, which a Chinese company owns, is fighting a law that would ban its operations in the U.S. unless it finds a new owner. The U.S. Supreme Court heard oral arguments on Friday and could make a ruling before President Trump is sworn in on January 20.
Early reports suggest that several justices are leaning toward supporting the government’s position, citing national security concerns due to TikTok’s ties to the Chinese government. If the Supreme Court upholds the ban, it could shift advertising dollars away from TikTok to its competitors, like Meta (META).
Trending Stocks of the Day
Here are some of the stocks that were trending during afternoon trading on Friday:
- Delta Air Lines (DAL): Shares rose more than 8% after the airline exceeded analysts’ expectations for both revenue and earnings in its fiscal fourth quarter, capping off a record-breaking revenue year in 2024.
Final Thoughts
The stock market is currently facing significant uncertainty, with strong jobs data raising questions about the Fed’s interest rate policies and inflation expectations climbing higher. Investors will be keeping a close eye on upcoming economic reports, particularly CPI data and corporate earnings, to get a better sense of the market’s direction in the coming months.
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