Investing.com – Stocks fell sharply on Friday as a better-than-expected jobs report dampened hopes of additional Federal Reserve interest rate cuts this year.
They fell 696.75 points, or 1.63%, to 41,938.45. The and fell 1.54% and 1.63%, closing at 5,827.04 and 19,161.63, respectively. The losses pushed all major indices into negative territory by 2025.
The labor market showed unexpected strength in December, with payrolls increasing by 256,000 compared to the 155,000 projected in a Dow Jones survey. The unemployment rate also fell slightly, falling to 4.1% from the expected 4.2%. Following the report, the increase reached its highest point since the end of 2023.
Following the jobs data, market expectations for a Federal Reserve rate cut in March fell significantly, with the CME FedWatch tool putting the odds at 25%, down from 41% just a day earlier. Previously, the central bank had cut rates by a quarter point in December.
During the week, all three major indices posted consecutive losses. The S&P 500 and Dow fell 1.9%, while the Nasdaq Composite lost 2.3%.
Heading into this week, it’s packed with key economic updates, including inflation, consumption and manufacturing indicators. Highlights include Wednesday’s consumer price index (CPI) report and Thursday’s retail sales data.
If concerns about persistent inflation increase, long-term Treasury yields could rise further, potentially approaching the 5.00% threshold.
Combined with the December jobs report, this week’s inflation numbers may highlight reducing risks to the labor market along with slower progress in reducing inflation. There is also a chance that tariffs could keep core PCE inflation at or above 2.5%.
“Coupled with our expectations for a 0.3% month-on-month rise in the US December Core CPI report next week and another strong retail sales report (0.6% check), it now looks likely that The Fed enters an extended pause to evaluate the state of the expansion. and the policies implemented by the Trump administration,” JPMorgan strategists led by Michael Feroli said in a note.
“Although the Federal Reserve is unlikely to ease its policies in the near term, it maintains an asymmetric reaction function, making debate on policy tightening unlikely for now,” they added.
Fourth Quarter 2024 Earnings Season Begins This Week
In addition to key economic releases, investors’ attention will be focused on the fourth-quarter 2024 earnings season, which will begin with reports from several large-cap financial companies.
Wall Street analysts project an 8% year-over-year increase in earnings per share (EPS) for the S&P 500 as a whole in the fourth quarter, with a 6% growth forecast for the midsize company.
According to Goldman Sachs, consensus estimates for Q4 earnings growth are among the highest since Q4 2021, surpassed only by the 9% year-over-year EPS growth forecast ahead of the Q2 earnings season. quarter of 2024. Over the past 11 quarters, S&P 500 actual EPS growth has, on average, exceeded consensus forecasts by 4 percentage points per quarter.
“We expect companies to continue to post strong earnings growth this quarter, but that the magnitude of gains will likely be smaller than in recent quarters, given the higher bar,” Goldman strategists said.
What analysts say about US stocks
Goldman Sachs: “We expect the S&P 500 to rise 12% through the end of 2025 to our target of 6,500. Earnings growth will be the main driver of S&P 500 gain.”
“We will reassess our S&P 500 earnings forecast after the season. Our current S&P 500 earnings per share growth forecast for 2025 is +11% ($268), roughly in line with the consensus of top-down strategists. We currently view the risks around our earnings outlook as balanced.”
wedbush: “With concerns that the 10-year bond is approaching the dangerous 5% threshold and the Fed now appears to be on a less dovish path for 2025, the Street has seen a clear risk-off environment for tech stocks heading into the year. “
“Ultimately, we view pullbacks like these as gold buying opportunities to own the winners in the AI revolution as more IT budget dollars head into this technology wave with the second and third AI derivatives now ready to benefit.”
RBC Capital Markets: “We have been stress testing our valuation model to determine what the fair value of the S&P 500 could be in 2025 without the Federal Reserve cuts or with some added increases.
We have updated those stress tests to reflect our Rate Strategy team’s new view that there will be no cuts in January. He goes on to suggest that further P/E expansion is unlikely in 2025 and that the S&P 500 could end the year around 6,200, the most conservative of the five models we have been using to arrive at our 6,600 2025 price target. in the S&P 500.”
bank of america: “This week all eyes are on the PPI and the CPI, as the market focus shifted from growth to inflation. While more positive numbers could put more pressure on stocks, we think the NFP blowout increases the inflation that stocks can withstand, especially after last week’s sell-off. Retail sales are also key to confirming the strength of the economy during the holidays. Additionally, Q4 results begin this week, which we believe will be crucial. We expect a rise of 2%, an optimistic tone from companies and a good environment for stock pickers.”