Stocks Hit as Jobs Fuel Bets Fed Will Stay on Hold: Markets Wrap

Treasury yields have been climbing since the Fed in September kicked off its rate cutting cycle. A resilient US economy fueled the moves further, leaving the 10-year yield more than 100 basis points higher than it was before the debut rate reduction. All that has forced bond investors to contend with the possibility that the benchmark yield could soon return to 5% — a level that has been breached only a handful of times over the past decade.

The move higher in Treasury yields over the past month has largely been driven by real rates — suggesting that higher growth expectations have been the dominant driver behind the selloff, according to Gennadiy Goldberg at TD Securities.

Neil Birrell at Premier Miton Investors says that any hope of a quiet start to the year has well and truly disappeared now.

“Good news for the strength of the economy and bad news for those hoping for interest-rate cuts, as inflation will stay bang at the top of the Fed’s agenda now,” he noted. “The jump in bond yields looks set to continue, which is bad news for equities. Could a 5% yield on the 10-year Treasury really be hit?”

For investors hoping equity markets would broaden from the megacap tech names, the latest data didn’t do them any favors, according to Lara Castleton at Janus Henderson Investors.

“People are now going to get concerned that the Fed will not be able to cut at all, pressure is building on the Fed,” said Guy Stear at the Amundi Investment Institute. “Yields will continue to rise towards 5% in the next couple of months, putting pressure on equity markets unless you get a very strong first-quarter earnings season.”

To Bret Kenwell at eToro, while the market may not love the latest jobs data, there are a lot of worse things than a strong labor market.

“Without a strong foundation in the labor market, the whole thing falls apart. Investors need to keep that in mind — even if that means rate-cut expectations take a step back,” Kenwell said.

Indeed, it looks like we are back in a world where good news is bad news, said Scott Helfstein at Global X. But that seems shortsighted, he noted.

“We believe that companies can deliver on lofty earnings expectations this year powered by automation technologies like AI and deregulation, and that will drive equities rather than the Fed,” he said.

The latest data raises the stakes for inflation gauges to be released next week. December consumer price index data to be released Jan. 15 are forecast to show a third straight month of acceleration, to a rate of 2.9%.

“The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish,” said Ellen Zentner at Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even a downside surprise in those numbers probably won’t be enough to get the Fed to cut rates any time soon.”

Corporate Highlights:

• Tesla Inc. refreshed its best-selling Model Y, applying a design element of the polarizing Cybertruck to its high-volume sport utility vehicle.

• Nvidia Corp. criticized new chip export restrictions that are expected to be announced soon, saying the White House was trying to undercut the incoming Trump administration by imposing last-minute rules.

• Delta Air Lines Inc.’s profit beat Wall Street’s estimates for the final months of 2024, buoyed by gains in both the US market and overseas. The company doesn’t expect the momentum to slow in the new year.

• Walgreens Boots Alliance Inc. reported quarterly sales that surpassed Wall Street’s expectations, spurring the shares and easing pressure on the drugstore chain as it mulls strategic options including a sale.

• Constellation Energy Corp. agreed to acquire closely held Calpine Corp. for $16.4 billion in a deal that will create the largest fleet of US power stations.

• The Walt Disney Co., Fox Corp. and Warner Bros. Discovery Inc. scrapped plans to create a joint sports streaming service just days after settling a lawsuit brought against the three companies alleging the platform would squelch competition.

• Chip-design company Synopsys Inc. won conditional approval from the European Union’s merger watchdog for its planned $34 billion buyout of software developer Ansys Inc, after addressing the regulator’s fears over the deal.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.3% as of 1:17 p.m. New York time

• The Nasdaq 100 fell 1.4%

• The Dow Jones Industrial Average fell 1.4%

• The MSCI World Index fell 1.3%

• Bloomberg Magnificent 7 Total Return Index fell 0.8%

• The Russell 2000 Index fell 2.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.6% to $1.0238

• The British pound fell 0.8% to $1.2210

• The Japanese yen rose 0.2% to 157.90 per dollar

Cryptocurrencies

• Bitcoin rose 3.4% to $95,211.42

• Ether rose 2.7% to $3,294.77

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.76%

• Germany’s 10-year yield advanced three basis points to 2.59%

• Britain’s 10-year yield advanced three basis points to 4.84%

Commodities

• West Texas Intermediate crude rose 3.1% to $76.20 a barrel

• Spot gold rose 0.9% to $2,691.69 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Natalia Kniazhevich and Julien Ponthus.

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