Dow Jones Stocks dropped on Friday despite positive news about the economy, leaving investors puzzled.
A government report released Friday morning revealed that U.S. employers added an impressive 256,000 jobs in December, and the unemployment rate fell to 4.1%.
However, the stock market reacted negatively. The Dow Jones Industrial Average closed down 697 points, or 1.6%, while the S&P 500 and Nasdaq each dropped 1.5% and 1.6%, respectively. As a result, all three major indexes are in the red for 2025.
The decline can be attributed to concerns that a strong economy might prompt the Federal Reserve to reconsider its approach to interest rates. A widely followed FedWatch forecast suggests there’s a high likelihood the Fed will keep rates unchanged at its January meeting. Many traders expect that further rate cuts may not happen until the summer. The Fed typically lowers rates to stimulate growth and raises them to slow down an overheating economy.
A strong jobs report spells trouble for Dow Jones Drops 700 Points
The strong jobs report will benefit the U.S. economy and the U.S. dollar, but it’s bad news for equities.
Another report released on Friday raised new concerns about inflation. According to the University of Michigan’s Survey of Consumers, people now expect inflation to hit 3.3% over the next year, up from 2.8% just a month ago.
Dow Jones Drops 700 Points Bond Market also Collapse
Bond market also had a rough day. Yields on long-term bonds have been climbing, with the 10-year Treasury bond now offering an interest rate of nearly 4.8%. Rising bond yields signal a weakening bond market, as bond prices fall when yields increase.
The Dow Jones Industrial Average sank 1.6% (around 700 points), deepening its drop below the 50-day moving average and indicating intensified bearish momentum.
S&P 500: Declined 1.5%, breaching its 50-day moving average and falling below the Jan. 2 support level, suggesting potential for continued downward pressure.
Jobs Data:
Nonfarm payrolls: Increased by 256,000 in December, exceeding the expected 157,000.
Unemployment rate: Unexpectedly ticked lower, indicating a still-tight labour market.
Wage growth: Slightly softer than expected, offering a glimmer of hope but insufficient to alleviate inflation concerns.
Bond Market Reaction:
10-year Treasury yield: Spiked to 4.79% during the session, a new high for over a year, before settling at 4.76% (an eight basis-point increase). Rising yields reflect heightened concerns about prolonged rate hikes and a recalibration of inflation expectations.
Market Breadth:
On the NYSE, decliners outpaced advancers by more than 4-to-1, while the Nasdaq showed a 3-to-1 ratio of decliners over advancers.
Trading volume rose on the NYSE and fell on the Nasdaq, highlighting heavier selling pressure on blue-chip and industrial stocks.
