Stocks plunge as strong job gains fuel inflation fears

The U.S. labor market ended 2024 with a bang, adding a robust 256,000 jobs in December and pushing the unemployment rate down to 4.1% from 4.2% the previous month. The strong job growth exceeded economists’ expectations and sent shockwaves through Wall Street, causing stocks to plummet as investors worried about the potential impact on inflation and interest rates. The Dow Jones Industrial Average fell nearly 700 points, or 1.6%, while the S&P 500 and Nasdaq Composite both dropped 1.5% and 1.6%, respectively. The selloff erased the week’s previous gains, with all three indices finishing in the red. Investors fear that the strong job numbers could keep upward pressure on inflation, making it less likely for the Federal Reserve to cut interest rates in the near future. The yield on the 10-year Treasury jumped to 4.76% from 4.68%, reflecting heightened expectations that the Fed may maintain or even raise rates to combat inflation. “The better-than-expected increase in jobs caused an immediate reaction in both stocks and bonds, with prices moving lower as the Federal Reserve has even less of a reason to cut interest rates this year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Jobs report rattles Wall Street

The December jobs report also showed a decrease in the number of permanent job losers and a reduction in the duration of unemployment, signaling stability and optimism within the labor market. Average hourly earnings rose 0.3% for the month and 3.9% year-over-year, indicating steady wage growth and increased consumer spending power. However, not all sectors of the economy are thriving. Brian Jacobsen, chief economist at Annex Wealth Management, noted that parts of the economy, such as manufacturing, remain under pressure. Smaller companies, which often rely more heavily on borrowing, saw significant stock price declines in response to the economic data. The Russell 2000 index of smaller stocks slumped 2.2%. As earnings season kicks off next week, investors will be closely watching reports from big banks and other companies for further insight into the economic landscape. The strong finish to the labor market in 2024 suggests continued job creation and economic growth, but the path forward for interest rates and inflation remains uncertain.