Stocks sold off sharply after the Bureau of Labor Statistics reported the strongest new hiring numbers in nine months on Jobs Friday. An uptick in consumer inflation expectations to their highest level since May provided an additional reason for investors to trim their rate-cut expectations.
“The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish,” says Morgan Stanley Wealth Management Chief Economic Strategist Ellen Zentner. “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.”
That’s the general consensus among economists, strategists, portfolio managers and other experts on what the December jobs report means for monetary policy. The next Fed meeting falls on January 28-29. In addition to the final nonfarm payrolls report of 2024, the Federal Open Market Committee will consider December Consumer Price Index data to be released by the Bureau of Labor Statistics before the market opens next Wednesday, January 15.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Meanwhile, preliminary University of Michigan consumer sentiment survey data for January shows the inflation expectations component has risen to its highest level since May 2024. The index slipped to 73.2, just short of a consensus forecast of 73.3 and down from 74 in December. The real story is the rise in inflation expectations for 2025 from 2.8% in December to 3.3% in early January and the increase in the long-term outlook from 3.0% to 3.3%.
According to Joanne Hsu, director of consumer surveys at the University of Michigan, “January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation.”
The yield on the 10-year U.S. Treasury note topped at 4.788% within 15 minutes of the December nonfarm payrolls report’s release, up 10 basis points from 4.681% on Thursday. It settled at 4.767%, 125 basis points above where it was before the Fed cut rates in September.
“The bond selloff is being mostly driven by uncertainty about the impact of Trump administration fiscal policies, and it can continue in the near term,” writes Ryan Swift, managing editor of U.S. bond strategy at BCA Research. “The negative stock market response to rising bond yields will ultimately be the catalyst that ends the bond selloff.”
At the closing bell, the Dow Jones Industrial Average lost 1.6% to 41,938, the S&P 500 was down 1.5% to 5,827 and the Nasdaq Composite declined 1.6% to 19,161.
Constellation to buy Calpine
All 11 S&P 500 sectors closed lower, though utility stocks saw more muted downside compared to their peers. Limiting losses for the sector was a 25.2% surge in Constellation Energy (CEG) after the company announced a $26.6 billion deal to acquire independent power producer Calpine. A Constellation-Calpine combination would create the biggest clean energy company in the U.S.
“The addition of a large gas portfolio opens the door for CEG to be more flexible in meeting future large load demand,” says UBS Global Research analyst William Appicelli.
In September, Constellation announced a power purchase agreement to supply electricity to Microsoft (MSFT) data centers from a reactivated Three Mile Island nuclear plant. In December, the power producer said it would receive $1 billion in nuclear power supply and energy-efficiency contracts with the U.S. government.
Natural-gas-fired power generation is an alternative amid surging data-center demand and limited nuclear supply. According to J.P. Morgan analyst Kevin Kwan, for Constellation, the deal will “underpin a broader base of exposure to power supply/demand trends today.”
Stocks on the move
Walgreens Boots Alliance (WBA) stock surged 27.6% after the drugstore chain beat top- and bottom-line expectations for its fiscal 2025 first quarter and reiterated its full-year profit forecast.
Delta Air Lines (DAL) stock soared 9% after the airline giant beat top- and bottom-line estimates for its fourth quarter and issued a strong outlook for its first quarter, with management saying it expects “strong demand for travel to continue.”