Stocks tumble following blowout jobs report
By John Towfighi, CNN
New York (CNN) — US stocks slid Friday as investors digested a better-than-expected jobs report that soured expectations of future rate cuts from the Federal Reserve.
The Dow dropped by more than 500 points, or 1.2%; while the S&P 500 fell by 1.1% and the tech-heavy Nasdaq index was lower by 1.2%.
At one point in morning trading, the Dow shed about 750 points and the Nasdaq fell by more than 2% before recovering losses.
The selloff comes as the economy added 256,000 jobs in December, far outpacing expectations of around 153,000 jobs. While strong job growth signals a healthy economy, it raises the question of how soon the central bank needs to cut interest rates again.
Traders now expect just a 2.7% chance the Fed will cut rates at its policy meeting later this month, according to the CME FedWatch Tool.
Additionally, President-elect Donald Trump’s proposed tariff policies, including reports of declaring a national economic emergency to impose widespread tariffs, has spooked investors, sending bond yields surging.
The yield on the 10-year US treasury spiked to 4.762%, its highest point since fall 2023.
Rising yields signal concern about a stronger-than-expected economy, resurgent inflation and potentially fewer rate cuts in 2025 than anticipated.
“The better-than-expected increase in jobs caused an immediate reaction in both stocks and bonds, with prices moving lower (and bond yields moving higher, as yields move inversely with price), as the Federal Reserve has even less of a reason to cut interest rates this year,” wrote Chris Zaccarelli, chief investment officer at Northlight Asset Management, in a note Friday.
Extreme fear was the sentiment driving the market Friday morning, according to CNN’s Fear and Greed Index.
Fed’s rate-cutting path is murky
Following the stronger-than-expected December employment data, Wall Street is adjusting its expectations for the Fed’s rate-cutting path this year.
Analysts at Goldman Sachs now expect just two rate cuts from the central bank — in June and December — as opposed to the previously anticipated three, citing job growth that exceeded expectations.
At Bank of America, economists now believe the Fed is done cutting rates — and see a growing possibility that central bankers may, instead, need to consider raising rates.
“We think the cutting cycle is over,” Aditya Bhave, senior US economist at Bank of America, said in a report. “Inflation is stuck above target, with upside risks … The conversation should move to hikes, which could be in play.”
At a press conference in December, Fed Chair Jerome Powell was asked by reporters if he could rule out potential rate hikes in 2025.
“You don’t rule things completely in or out … in this world,” Powell said, before noting “that doesn’t appear to be a likely outcome.”
However, analysts at Morgan Stanley expect the Fed to cut rates in March, highlighting diverging forecasts on Wall Street.
“The report should reduce the probability of near-term Fed cuts, though our more favorable outlook on inflation keeps us thinking a March cut is still more likely than not,” analysts at Morgan Stanley said in a note.
Traders on Friday expect a 25% chance the Fed will cut rates in March, down from Thursday’s expectations of a 41% chance, according to the CME FedWatch Tool.
This story is developing and will be updated.
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CNN’s Elisabeth Buchwald and Matt Egan contributed reporting.
