Dow drops 697 points after jobs report cuts interest rates

• U.S. stocks fell on Friday after a strong jobs report in December dashed hopes for Fed rate cuts in 2025.

• The economy added 256,000 jobs in December, exceeding expectations and lowering the unemployment rate to 4.1%.

• Higher bond yields could lead to a correction in the stock market.

U.S. stocks tumbled on Friday after a strong jobs report in December dashed investor hopes for further rate cuts from the Federal Reserve this year.

The Dow Jones fell 697 points, while the Nasdaq 100 and S&P 500 fell more than 1%.

The economy added 256,000 jobs in December, well above the average economist estimate of 155,000. The unemployment rate unexpectedly fell to 4.1% from 4.2% in November.

The strong jobs report led to a rise in bond yields, with the 10-year U.S. Treasury yield rising to its highest level since October 2023, hitting an intraday high of 4.79%.

According to the CME FedWatch Tool, markets now expect just one 25 basis point rate cut from the Fed this year, but economists say even that forecast is too rosy.

“Given a resilient labor market, we now believe the Fed’s austerity cycle is over. Inflation remains above target and risks are tilted to the upside. Economic activity is robust. We see little reason for further easing,” economists at the Bank of America. in a Friday note.

Wharton professor Jeremy Siegel supported that view in an interview with CNBC on Friday.

“I think the market is really saying that there may not be any rate cuts until 2025, and the 10-year yield could very easily be above 5%,” Siegel said.

Siegel emphasized that higher bond yields have historically driven down stock market valuations. So it wouldn’t be a surprise if the stock market were to undergo a correction this year.

Here’s where the US indexes stood at 4pm on Friday:

Here’s what else happened today:

In commodities, bonds and crypto:

• West Texas Intermediate crude rose 3.58% to $76.57 a barrel. Brent crude, the international benchmark, was 3.60% higher at $79.69 per barrel.

• Gold rose 0.92% to $2,715.50 an ounce.

• The yield on ten-year government bonds rose by 9 basis points to 4.778%.

• Bitcoin rose 2.77% to $95,112.

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