Dow Plunges 697 Points as Jobs Report Dashes Rate-Cut Hopes

The Dow Jones Industrial Average (DJIA) took a significant hit on Friday, January 10, 2025, as investors reacted to a robust jobs report that dashed hopes for aggressive Federal Reserve (Fed) rate cuts. The DJIA tumbled 697 points, or 1.6%, to close at 42,255.34, marking its worst day since October 2023. The S&P 500 and Nasdaq Composite also finished lower, down 1.5% and 1.4%, respectively.



The strong jobs report, which showed nonfarm payrolls surging to 256,000 in December, far above expectations of around 153,000, raised concerns that the Fed may not need to cut rates as aggressively as previously anticipated. This shift in sentiment led to a decrease in market expectations for rate cuts, with traders now pricing in just a 2.7% chance of a rate cut at the Fed's next meeting later this month, according to the CME FedWatch Tool.

Analysts at Goldman Sachs have revised their expectations for the Fed's rate-cutting path, now anticipating just two rate cuts this year, down from the previously expected three. Bank of America economists have even suggested that the Fed's cutting cycle may be over, as inflation remains above target and there are upside risks to the economic outlook.

The strong jobs report also led to a rise in consumer inflation expectations, with the University of Michigan's 5-Year Consumer Inflation Expectations climbing to 3.3% in January. This increase in inflation expectations, coupled with the robust labor market data, dampened risk appetite in equities, as investors reassessed the potential impact on corporate earnings and economic growth.

The Dow Jones' recent performance may influence investor sentiment in the coming months, as the index has been on a bullish run but has been experiencing a downturn since December. The DJIA is now down over 7% from record highs and is approaching the 200-day Exponential Moving Average (EMA) near 41,160. If the index can find support at this level or the 41,600 level, it could help to alleviate some of the fears and potentially attract bargain hunters, leading to a rebound in investor sentiment.

In conclusion, the strong jobs report and rising consumer inflation expectations have led to a decrease in market expectations for Fed rate cuts, dampening risk appetite in equities. The Dow Jones' recent performance may influence investor sentiment in the coming months, as the index approaches key support levels. Investors should closely monitor the market's reaction to these factors and other economic indicators to better understand how investor sentiment may evolve in the coming months.