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Dow plunges 640 points after jobs report

Dow plunges 640 points after jobs report

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The stock market took a sharp downturn on Friday after a strong December jobs report. The Dow fell 640 points, or 1.5%, while the S&P 500 and Nasdaq Composite also experienced significant declines of 1.3% and 1.4%, respectively. The selloff was triggered by rising bond yields as market participants pulled back expectations for interest-rate cuts this year.

Higher-than-expected inflation expectations from a University of Michigan survey further exacerbated the situation. Treasury yields surged to their highest levels in over a year, with the 10-year yield rising eight basis points to 4.77%. The dollar also reached a two-year peak.

Traders now predict only one quarter-point rate cut from the Federal Reserve this year, likely in September. The U.S. economy added the most jobs since March in December, and the unemployment rate unexpectedly fell.

Market reacts to strong jobs data

Separate data indicated ongoing price pressures, with consumer inflation expectations rising to levels not seen since 2008. Neil Birrell of Premier Miton Investors commented, “Any hope of a quiet start to the year has well and truly disappeared. Good news for the economy’s strength is bad news for those hoping for interest-rate cuts, as inflation will remain the Fed’s priority.”

Economists at major banks have revised their forecasts for Fed rate cuts following the solid jobs data.

Bank of America no longer anticipates any cuts and warns of a potential hike, while Citigroup still foresees five quarter-point cuts starting in May. The focus now shifts to upcoming inflation data, with December’s consumer price index report expected on January 15, predicted to show a third consecutive month of acceleration at a rate of 2.9%. Ellen Zentner of Morgan Stanley Wealth Management remarked, “The surprisingly strong jobs report won’t make the Fed less hawkish.

All eyes are now on the next week’s inflation data.”

The market turmoil has investors bracing for more volatility as expectations for fewer rate cuts are recalibrated. The potential return to a 5% yield on 10-year Treasuries, rarely seen over the past decade, has bond investors on edge.



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