S&P 500: Strong Jobs Data Pushes Index Lower as Rate-Cut Hopes Fade

Dow Sinks Over 600 Points as Strong Jobs Report Dampens Rate-Cut Expectations

Stocks are sharply lower on Friday as stronger-than-expected U.S. labor market data curbs hopes for Federal Reserve rate cuts later in 2025. At 15:21 GMT, the Dow Jones Industrial Average is down 574.30, or 1.35%, while the S&P 500 is sliding 1.53%. The Nasdaq Composite is the hardest hit, dropping 2%. All three major indexes are on track for weekly losses, with the Nasdaq down 2.6% so far.

What’s Driving Today’s Declines?

New payroll data revealed that the U.S. economy added 256,000 jobs in December, well above economists’ forecasts of 155,000. Additionally, the unemployment rate fell to 4.1%, surprising analysts who expected it to hold steady at 4.2%.

The strong data is driving Treasury yields higher, with the 10-year yield climbing to its highest level since late 2023. Fed funds futures suggest a 97% probability the Federal Reserve will maintain rates at its January meeting. The odds of a rate cut in March have fallen to 25%, down from 41% yesterday, based on CME FedWatch data.

Which Sectors Are Leading the Sell-Off?

Growth-sensitive sectors are taking the biggest hit. Technology stocks are down 2.6%, with Nvidia falling 3.9% and Palantir off 3.4%. Financials are also under pressure, dropping 2.2% as higher yields weigh on the sector.

Real estate and communication services are both seeing steep declines of 1.9% and 1.8%, respectively. Consumer discretionary stocks are also struggling, down 1.6%, as higher rates could dampen spending.

On the upside, energy is bucking the broader trend, up 0.7% as oil prices climb. Utilities are marginally higher, up 0.1%, benefiting from their reputation as a defensive play.

What Are Analysts Saying?

“Good news for the economy but not for the markets, at least for now,” notes Scott Wren, senior global market strategist at Wells Fargo Investment Institute. He adds that while the labor market remains strong, the data reinforces expectations that the Federal Reserve will keep rates elevated longer than previously anticipated.

What’s Next for the Market?

Investors are closely watching next week’s Consumer Price Index (CPI) report, which could further influence the Fed’s stance on monetary policy. Earnings season is also ramping up, with growth-oriented sectors facing scrutiny over profit margins as higher interest rates persist.

Traders are bracing for more volatility as they weigh the implications of robust labor market strength against the potential for prolonged tighter financial conditions. Markets remain in flux as the session progresses.

More Information in our Economic Calendar.