S&P 500 erases 2025 gains on jobs blowout

Stocks got hammered and bond yields jumped with the dollar as traders slashed their bets for Federal Reserve rate cuts this year after a blowout jobs report.

Equities erased their 2025 advance, with the S&P 500 down almost 1% on Friday. A Treasury selloff accelerated, sending 30-year yields above 5%. The greenback advanced against all of its major counterparts. Swaps traders are pricing in about 28 basis points of total Fed cuts this year, compared to about 38 basis points before the data.

Nonfarm payrolls increased 256,000, exceeding all but one forecast in a Bloomberg survey of economists. The unemployment rate fell to 4.1%, while average hourly earnings rose 0.3% from November, a Bureau of Labor Statistics report showed Friday.

The S&P 500 fell 0.9%. The Nasdaq 100 fell 1%. The Dow Jones Industrial Average fell 0.8%.

The yield on 10-year Treasuries advanced six basis points to 4.75%. The Bloomberg Dollar Spot Index rose 0.3%.

Wall Street’s Reaction to Jobs:

• Ellen Zentner at Morgan Stanley Wealth Management:

The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish. 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.

• George Mateyo at Key Wealth:

This is great news for the economy and for Main Street, but Wall Street must accept the fact the Fed will likely be on pause until inflation moderates or today’s labor market strength abates.”

• Lara Castleton at Janus Henderson Investors:

The first big data print for the year confirms that the labor market is still strong and the US economy is solid, encouraging the US exceptionalism narrative. 

Within US markets, however, the good news is starting to once again sound like bad news. For investors hoping for equity markets to broaden from the megacap tech names, this print didn’t do them any favors.

The market may not love this jobs number, but there are a lot worse things than a strong labor market. Remember, the consumer is the lifeblood of the US economy and being employed is critical for consumer spending and confidence. 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.

• Gina Bolvin at Bolvin Wealth Management Group:

Today’s payroll report is hot, hot, hot in the wake of recent economic data. Investors may want to brace themselves for more volatility as the market recalibrates expectations for fewer cuts. I’d be a buyer on a dip we expect another good year of solid earnings growth.

• Guy Stear at the Amundi Investment Institute:

People are now going to get concerned that the Fed will not be able to cut at all, pressure is building on the Fed. I think the 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. 

The markets are going to be more defensive till at least mid-February. I would wait for the yield to reach 5% to buy long positions in US 10 years.

• Richard Flynn at Charles Schwab UK:

Strong jobs creation and low unemployment are often indicators of a healthy economy – naturally a cause for optimism, but potentially causing slight disappointment for investors hoping for further interest rate cuts.

• Jamie Cox at Harris Financial Group:

Markets tried to front run the Fed on the level of interest rates are now paying the price. Conflating an interest rate normalization cycle for an accommodative one was easy to do if one was not paying attention to what the Fed actually said and what the incoming data actually showed.

• Steve Sosnick at Interactive Brokers:

We can forget about the weaker labor narrative for a while, and that anyone basing hopes for a more accommodative Fed on the employment portion of the dual mandate need to wait a while

• Lindsay Rosner at Goldman Sachs Asset Management:

Data did not earn a January cut. The US labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures. The strength of today’s December jobs report puts to rest lingering chances of a 25bp cut in January and shifts the focus to the March meeting, where further rate cuts will depend on progress on inflation.

• Seema Shah at Principal Asset Management:

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.

For global bonds, the strength of the US jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.

• Florian Ielpo at Lombard Odier Investment Managers:

From a market standpoint, this robust job data is bearish for bonds and likely unfavorable for cyclical assets as well. In terms of currency impact, this situation presents another opportunity for the dollar to strengthen against other currencies. The key question now is how much more pressure the markets can withstand before capitulating.

• Paul Stanley at Granite Bay Wealth Management:

If the labor market and inflation remain stable and at or near current levels, we still expect only two rate cuts this year. Bond yields are rising on expectations of more economic growth and government spending, so the Fed may still want to cut a few times this year to try to keep interest rates in check, although it has no control over bond yields.

• Bryce Doty at Sit Fixed Income Advisors:

Bond investors were already skittish before the jobs data. This report is going to fuel a continuation of higher yields and pushes off the next Fed rate cut off even further. We might not see another rate cut until next quarter.

At some point, everyone is on the same side of the trade and the market will break in the opposite direction more than you expect. So today could be a buying opportunity for brave bond investors (“brave bond investors” is typically an oxymoron though).

• Larry Tentarelli at Blue Chip Daily Trend Report:

Markets are likely to read a much stronger than forecast labor market as inflationary, which could lead to higher bond yields and a less accommodative Fed.

We do not think today’s reports changes the Fed’s data dependent stance, and we do not expect a Fed rate cut in the first quarter of 2025.

• Neil Birrell at Premier Miton Investors:

An eagerly awaited US employment report has shown the jobs market to be much, much stronger than expected. 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. 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? Any hope of a quiet start to the year has well and truly disappeared now.

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. shares jumped after the carrier’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 results that surpassed Wall Street’s expectations, easing pressure on the pharmacy chain as it mulls strategic options including a sale.
• Constellation Energy Corp. agreed to acquire closely held Calpine Corp. for $16.4 billion to add scores of power generation assets across the US as the nation’s electricity demand is forecast to surge.
• Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.9% as of 9:31 a.m. New York time
• The Nasdaq 100 fell 1%
• The Dow Jones Industrial Average fell 0.8%
• The Stoxx Europe 600 fell 0.2%
• The MSCI World Index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.5% to $1.0253
• The British pound fell 0.6% to $1.2238
• The Japanese yen was little changed at 158.23 per dollar

Cryptocurrencies

• Bitcoin rose 2.1% to $94,024.65
• Ether rose 1.5% to $3,255.39

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.76%
• Germany’s 10-year yield advanced two basis points to 2.59%
• Britain’s 10-year yield advanced four basis points to 4.85%

Commodities

• West Texas Intermediate crude rose 5.1% to $77.69 a barrel
• Spot gold rose 0.9% to $2,690.69 an ounce