US Stocks Plunge as Jobs Report Sparks Inflation, Rate Hike Fears

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Dow drops 700 points; S&P 500, Nasdaq erase gains as Fed rate hikes loom amid strong labor market.


Wall Street Tumbles as Jobs Report Stirs Rate Hike Concerns

The U.S. stock market faced a sharp sell-off on Friday following the release of December's jobs report, which exceeded expectations and reignited fears of prolonged Federal Reserve rate hikes. The Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) all suffered significant losses, erasing their year-to-date gains and leaving investors grappling with uncertainty.

Major Indices Decline

The Dow fell by 1.63%, shedding nearly 700 points to close at 41,938.45, marking its steepest single-day drop in weeks. The S&P 500 followed suit, losing 1.5%, while the Nasdaq dropped 1.6%. On a weekly basis, the Dow, S&P, and Nasdaq recorded declines of 1.1%, 0.7%, and 0.6%, respectively.

Strong Labor Market Fuels Fed Rate Fears

The December nonfarm payrolls report showed robust job creation, with over 250,000 jobs added, surpassing Wall Street expectations. The unemployment rate dropped to 4.1%, further underscoring the labor market's resilience. While these figures indicate economic strength, they also increase the likelihood of the Federal Reserve maintaining its aggressive stance on interest rates.

Market analysts now predict that the Fed could delay any rate cuts until at least July, as per the CME FedWatch Tool. Fed Chair Jerome Powell and other officials have recently signaled a cautious approach to lowering rates, emphasizing the importance of taming inflation.

Inflation Expectations Worsen

Adding to market jitters, the University of Michigan's consumer sentiment index revealed a rise in inflation expectations. Year-ahead inflation projections jumped from 2.8% in December to 3.3% in January, the highest level since May 2024. Long-term inflation expectations also edged higher, reaching 3.3%.

The news pushed the 10-year Treasury yield (^TNX) closer to 4.8%, marking its highest levels since late 2023. Rising yields typically weigh on equities, as they signal higher borrowing costs and reduced corporate profitability.

Earnings Season Offers Mixed Signals

Amid the broader market decline, some companies delivered positive surprises. Walgreens Boots Alliance (WBA) reported better-than-expected first-quarter profits, showcasing progress in its turnaround efforts. Shares of Walgreens surged over 20%. Similarly, Delta Air Lines (DAL) experienced a 9% jump in stock value after announcing record annual revenue and a robust fourth-quarter profit.

However, these earnings reports were not enough to offset broader concerns about economic headwinds. Investors are now bracing for the upcoming earnings season, with major banks set to release their results next week.

Market Outlook

As inflation fears and rate hike expectations dominate investor sentiment, the U.S. stock market appears poised for a volatile start to 2025. The strong labor market, while a positive indicator of economic health, complicates the Federal Reserve's path to achieving price stability without stifling growth.

Experts advise cautious optimism, emphasizing the importance of monitoring key economic indicators and corporate earnings in the coming weeks.

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  1. Economic Reporter2025년 1월 10일 PM 2:10

    Stocks Slide on Fed Rate Hike Worries

    Friday's market drop wiped out year-to-date gains as a strong jobs report reignited inflation fears. Learn why investors are bracing for prolonged Fed tightening.

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