The U.S. stock market ended the week on a sour note as stronger-than-expected labor market data dashed hopes of further Federal Reserve rate cuts. While energy stocks saw gains thanks to new sanctions on Russia, most other sectors faced a downturn. Investors now focus on upcoming earnings reports and Trump’s economic policy plans, hoping this dip is temporary.
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Here’s the S&P 500 heatmap. 1 of 11 sectors closed green, with energy (+0.41%) leading and real estate (-2.46%) lagging.
Labor Market Resilience Shakes Markets
December’s nonfarm payroll report surprised analysts, with 256,000 jobs added, far exceeding the forecast of 155,000. Other key indicators also pointed to a robust labor market:
- Unemployment Rate: Dropped by 0.1% to 4.1%.
- Broader Jobless Measure: Fell to 7.5%, its lowest since June 2024.
- Wage Growth: Average hourly earnings rose 0.3% month-over-month and 3.9% year-over-year.
The strong labor market signaled resilience against high interest rates but fueled concerns that inflation risks remain elevated. This pushed the 10-year Treasury yield near 5%, spurring a sell-off in equities as Wall Street adjusted to the likelihood of prolonged higher rates.
Market Performance
Major U.S. indexes closed sharply lower:
- S&P 500: 5,827 (-1.54%)
- Nasdaq: 19,162 (-1.63%)
- Dow Jones: 41,938 (-1.63%)
- Russell 2000: 2,189 (-2.22%)
Only one energy sector closed in the green, up 0.41%, while real estate lagged behind with a 2.46% decline.
Energy Stocks Rise Amid Sanctions on Russia
Energy stocks benefited from higher crude oil prices following new sanctions on Russia, which aim to curb its energy exports. This geopolitical development provided a boost to companies in the sector, helping offset broader market declines.
Earnings Season and Economic Policy in Focus
Investors are gearing up for next week’s earnings season, which could provide clearer insights into corporate resilience amid economic headwinds. Additionally, markets are watching for updates on Trump’s economic policy plans, particularly in light of ongoing geopolitical tensions and inflation concerns.
Key Stock Movements
- Constellation Energy (+25%): Hit all-time highs after securing a $26.6 billion deal to acquire Calpine Corp.
- Constellation Brands (-17%): Dropped to multi-year lows as declining wine and spirits sales overshadowed growth in its beer segment.
- Delta Air Lines (+9%): Surged after exceeding earnings expectations and projecting 2025 as its best financial year yet.
- PG&E Corp. (-11%): Fell amid concerns about potential liability for Los Angeles wildfires.
- Walgreens (+28%): Jumped after surpassing earnings expectations, driven by cost-cutting measures and improved pharmacy sales.
Outlook
As markets grapple with higher interest rates and resilient economic data, volatility is expected to persist. The Fed’s next steps will be influenced by inflation and labor market trends, making upcoming economic reports and earnings announcements critical for market direction.
This week’s developments highlight the delicate balance between economic strength and the risks posed by prolonged monetary tightening. Investors will remain cautious, bracing for more market swings as 2025 unfolds.
