U.S. Stocks Drop Amid Strong Jobs Report and Rising Yields: U.S. stocks have surrendered their 2025 gains,
facing significant pressure as bond yields rise and the dollar strengthens.
This came after a stronger-than-expected jobs report,
which led traders to scale back their bets on Federal Reserve rate cuts this year.
Contents
Strong Economy
Expert Opinions
Stock Market and the Federal Reserve
Stock Performance
Wall Street’s high-risk U.S. stocks experienced significant selling pressure,
with small-cap stocks declining by about 10% from their previous highs.
Additionally, a brief dip in Treasury bonds pushed 30-year yields above 5%.
Swap contracts currently forecast a total rate cut of less than 30 basis points by the Federal Reserve this year.
Strong Economy and Persistent Inflation
The U.S. economy added the most significant number of jobs in December since March,
while the unemployment rate unexpectedly fell,
reflecting a stronger-than-expected year-end.
However, separate data raised concerns over persistent price
pressures as long-term consumer inflation expectations reached their highest levels since 2008.
Rising oil prices further exacerbated these concerns.
Expert Opinions
Neil Birrell of Premier Miton Investors noted that hopes for a calm start to the year have dissipated.
He commented, “The news is good in economic strength, but bad for those hoping for rate cuts,
as inflation has become a key focus for Federal Reserve policy.”
He added, “Treasury yields seem likely to continue rising, which is negative for U.S. stocks.
Could the 10-year Treasury yield reach 5%?”
Key Index Performance
The S&P 500 fell by 1.5%, nearing its 100-day moving average.
The Nasdaq 100 and Dow Jones Industrial Average each declined by 1.6%.
The “Magnificent Seven” index dropped by 1.2%,
while the small-cap Russell 2000 index fell by 2.2%.
On the volatility front, Wall Street’s preferred volatility gauge,
the VIX rose to approximately 20 points.
Bond Yields and the Dollar
The 10-year Treasury yield increased by 7 basis points to 4.77%,
while the Bloomberg Dollar Spot Index climbed by 0.5%.
Lowered Rate Cut Expectations
Following Friday’s strong jobs report,
economists at several major banks revised their expectations for rate cuts by the Federal Reserve.
Bank of America: Previously predicted two 0.25% rate cuts this year but now expects no cuts,
warning of a potential rate hike instead.
Citigroup: Remains optimistic, forecasting five 0.25% rate cuts, likely starting in May.
Goldman Sachs: Now expects only two rate cuts this year, down from three previously predicted.
Seema Shah’s Commentary
Seema Shah from Principal Asset Management stated,
“The Federal Reserve is likely to keep rates unchanged
in January and would only move in March if there are significant
downside surprises in inflation or notable setbacks in upcoming jobs reports.”
Regarding global bonds, Shah noted,
“The strength of the U.S. jobs report increases challenges for these markets,”
adding that “yields have not yet peaked.”
Rising Treasury Yields
Treasury yields have continued to rise since the Federal Reserve began its rate-cutting cycle in September.
The strength of the U.S. economy has driven this trend,
with the 10-year Treasury yield climbing more than 100 basis points above its level before the first rate cut.
Growth Expectations
According to Gennadiy Goldberg of TD Securities,
last month’s increase in Treasury yields was largely driven by higher real yields,
indicating that elevated growth expectations were the primary driver of the sell-off.
Investment Tips
Gina Bolvin of Bolvin Wealth Management Group emphasized
the importance of preparing for further volatility,
stating, “I advise investors to adapt to the market as expectations for rate cuts diminish.”
Stock Market and the Federal Reserve
Chris Zaccarelli of Northlight Asset remarked,
“The stock market doesn’t necessarily need lower interest rates to rise,
but a Federal Reserve pursuing accommodative monetary policy
always creates a more favorable environment for equity investors.”
He added, “At this stage of the easing cycle,
corporate earnings—not just those of major tech companies
must improve to support the market’s already high valuations,
requiring caution in the short term.”
U.S. Stocks Drop Amid Strong Jobs Report and Rising Yields
