Major U.S. Indices Drop Over 1.5%

On January 10, local time, the United States Bureau of Labor Statistics released new data indicating a decrease in the unemployment rate to 4.1% for December 2024, alongside the addition of 256,000 jobs in the non-farm sectorThese figures reflect a significant overhaul in the perspectives on the American job market, with implications for monetary policy and overall economic growth.

The robust job numbers have dampened the anticipated interest rate cuts, leading to declines in stock markets across the U.Son the same dayThe major indices—Dow Jones Industrial Average, S&P 500, and NASDAQ—saw their values drop by over 1.5% each, closing with a plunge of 1.63%, 1.54%, and 1.63% respectivelyThis downward trend has persisted for two consecutive weeks, with NASDAQ down 2.34%, S&P 500 down 1.94%, and the Dow down by 1.86%.

The detailed breakdown of employment changes showed that the healthcare sector contributed significantly to the growth, adding 46,000 jobs

The leisure and hospitality industry followed closely with an increase of 43,000 positionsAdditionally, government jobs saw a rise of 33,000. The retail sector also experienced a substantial uptick, particularly due to the holiday shopping season, which resulted in the creation of 43,000 jobs.

In its overview of the jobs market, the Bureau of Labor Statistics not only outlined the new data but also revised previous statisticsSpecifically, the number of jobs added in October 2024 was adjusted from 36,000 to 43,000, while the figure for November was revised downward from 227,000 to 212,000. Collectively, the revised numbers for October and November resulted in a net decrease of 8,000 positions compared to the earlier reports.

Sam Stovall, a market strategist for CFRA Research, commented on the troubling start to the year, stating that the S&P 500 has effectively wiped out all gains made earlier in the year

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He highlighted the challenging environment for the stock market ahead, emphasizing the impact of the unexpectedly high employment figures.

These strong employment statistics may signal accelerated economic growth and increased inflationary pressures, which could lead the Federal Reserve to exercise caution in terms of interest rate reductions to avoid further increasing pricesThe environment surrounding U.STreasury bonds has also added to market pressures, with the yield on 10-year Treasury notes reaching 4.77%, the highest level observed since November 1, 2023. The yield on 30-year Treasury bonds leaped to 4.96%, even momentarily exceeding 5%.

In the technology sector, major stocks mostly fell, with Netflix seeing a drop of more than 4%, while Apple and Amazon declined by over 2%. Microsoft and Google’s parent company Alphabet also lost more than 1%. Conversely, Meta experienced nearly a 1% increase, and Tesla only saw a minor drop

The semiconductor industry faced similar declines, with ON Semiconductor dropping over 7%, AMD falling more than 4%, and major players like Intel and NVIDIA also suffering losses of over 3%.

The banking sector did not fare any better, with State Street Corporation down nearly 4%, while Barclays, Goldman Sachs, and Morgan Stanley lost over 3%, and Citigroup and Bank of America dropped beyond 2%.

Market analysts view the employment figures from December 2024, which marked the highest job growth since March of the previous year, as a justification for the Federal Reserve to recalibrate its approach to interest rate cutsThe Federal Reserve is set to convene for its first monetary policy meeting of 2025 on January 28 and 29. According to data from the Chicago Mercantile Exchange's Federal Reserve tracking tool, the release of the employment data has pushed market expectations for the Federal Reserve to maintain rates to a staggering 97%.

Additionally, forecasts regarding interest rate cuts in January showed a steep decline, plummeting from 6.4% to 2.7%, while the likelihood that there will be no rate cuts at all this year jumped from 13.4% to 25.3%. Following the non-farm payroll report, Goldman Sachs adjusted its predictions, now anticipating the Federal Reserve will execute a total of 50 basis points in rate reductions this year, down from an earlier prediction of 75 basis points

The bank expects a 25 basis point cut in both the upcoming meetings in June and December.

Traders using federal funds futures indicated a 97% probability that the Federal Reserve would choose to keep interest rates unchanged in their upcoming meeting later this monthMoreover, the sentiment also swayed towards maintaining rates steady in March as well, with expectations for a rate cut dropping significantly from 41% to about 25% after the employment data was released.

Market analyst John Brady underscored the significance of the non-farm payroll figures, stating they represent a “big number” that has redirected the Federal Reserve's focus firmly back on inflationIn a speech addressing California bankers on January 9, Federal Reserve Governor Michelle Bowman expressed her support for the recent rate cuts but emphasized that further reductions might be unnecessary