January 10 (Reuters): After a positive jobs data fueled new inflation concerns and strengthened wagers that the Federal Reserve will be cautious in lowering interest rates this year, U.S. stocks dropped sharply on Friday, with the S&P 500 wiping out its 2025 gains.
For the second week in a row, Wall Street’s major indexes ended the week lower.
“We started the year on the wrong foot,” said CFRA Research market strategist Sam Stovall, who was discussing how a hotter-than-expected job report affected stocks. He went on to say that the stock market might become “quite challenging.”
The S&P 500 dropped 91.21 points, or 1.54%, to 5,827.04, the Dow Jones Industrial Average dropped 696.75 points, or 1.63%, to 41,938.45, and the Nasdaq Composite dropped 317.25 points, or 1.63%, to 19,161.63.
The domestic small-cap Russell 2000 index, which was down 10.4% from its closing high on November 25, also dropped 2.27%, entering correction territory. On Friday, the fear gauge on Wall Street reached a three-week high.
According to a Labor Department report, the labor market concluded the year well as job growth unexpectedly surged in December and the jobless rate dropped to 4.1%.
Price increases could result from a speedier economic boom brought on by a hotter-than-expected job gain. The Fed may have to adopt a more cautious approach to rate decreases this year in order to control inflation that is still high.
According to the CME Group’s FedWatch Tool, traders anticipate that the central bank will initially reduce borrowing costs in June before maintaining a stable rate throughout the remainder of the year.
Additionally, brokers updated their predictions for a Fed rate drop; BofA Global Research now predicts a possible rate hike.
There is no indication that the economy is overheating once more, according to Chicago Fed President Austan Goolsbee, who also stated that he still believes it will be prudent to further reduce interest rates.
The yield on the 30-year Treasury note, which was putting pressure on stocks, modestly down to 4.966% from its peak of 5% in November 2023.
Except for the energy index, which increased by 0.34%, the most of the 11 S&P 500 sectors saw declines.
A University of Michigan study revealed that consumer sentiment fell to 73.2 in January compared to the previous month, which further contributed to the gloomy atmosphere.
The Fed issued a cautious projection on monetary easing last month in anticipation of trade and immigration policy changes under President-elect Donald Trump, who is due to take office in ten days, as new inflation concerns have gained attention.
Investors will be keenly monitoring the monthly consumer price index release on January 15; if it is higher than anticipated, this might lead to additional volatility.
Bryant VanCronkhite, senior portfolio manager at Allspring, stated, “Markets would sell off meaningfully because all of a sudden the Fed is probably in a position not just to not cut rates and support markets, but to actually hike rates.”
Chip companies, including Nvidia, fell almost 3% as a result of a story that suggested the United States would reveal new export laws as early as Friday.
Constellation Brands fell 17.09% after lowering its yearly sales and profit projections, but Constellation Energy surged 25.16% after agreeing to pay $16.4 billion to acquire privately held natural gas and geothermal producer Calpine Corp.
Following the release of a positive quarterly earnings, Walgreens Boots Alliance saw a 27.55% increase in value.
On the NYSE, declining issues outnumbered advancers by a ratio of 4.24 to 1, and on the Nasdaq, the ratio was 3.32 to 1.
The Nasdaq Composite saw 39 new highs and 211 new lows, while the S&P 500 saw 6 new 52-week highs and 32 new lows.
In contrast to the average of 12.31 billion shares for the entire session during the previous 20 trading days, the volume on U.S. exchanges was 16.24 billion shares.
