U.S. Stocks Drop as Strong Jobs Report Raises Inflation Concerns

U.S. stocks fell on Friday, January 10, 2025, as investors digested a better-than-expected jobs report that raised concerns about persistent inflation and the likelihood of future rate cuts by the Federal Reserve. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all declined by around 1.5% to 1.6% on the day.

The strong jobs report showed that U.S. employers added 256,000 jobs in December, far outpacing expectations of around 153,000 jobs. The unemployment rate also fell to 4.1%, below the expected 4.2%. This unexpected surge in job growth raised concerns about upward pressure on inflation and the likelihood of future rate cuts by the Federal Reserve.

The CME FedWatch Tool, which tracks market expectations for Fed policy, showed that the probability of a rate cut at the upcoming policy meeting later in the month fell to just 2.7% on Friday, down from 41% the previous day. This dramatic shift in expectations was driven by the better-than-expected jobs report, which suggested that the Fed might have less reason to cut interest rates in the near term.

The strong job market report also contributed to a decline in market sentiment, as reflected by the CNN Fear and Greed Index. The index indicated extreme fear among investors on Friday morning, likely due to the uncertainty surrounding the Fed's rate-cutting path and the potential impact of President-elect Donald Trump's proposed tariff policies on the market.

Analysts from various financial institutions adjusted their expectations for the Fed's rate-cutting path in response to the strong jobs report. Goldman Sachs, for instance, reduced its forecast for rate cuts in 2025 from three to just two, citing the unexpected job growth. Bank of America economists even suggested that the Fed might consider raising rates instead of cutting them, given the persistent inflation and a strong labor market.

The sectors that contributed most to the overall market performance on that day were technology, financials, and energy. The tech sector was particularly hard hit, with individual stocks such as Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), and Broadcom (AVGO) all tumbled, while Meta Platforms (META) added about 1%. The financial sector also experienced significant declines, with shares of property insurers falling as estimates of damage related to the Los Angeles wildfires continued to rise. Energy stocks helped limit the market's losses after prices rose for crude oil and natural gas.