Stock market today: Wall Street recoils after good news on the economy raises inflation worries
- NewsBlend360
- Jan 12
- 3 min read
NEW YORK (NB360) — U.S. stocks declined on Friday due to concerns that positive news regarding the job market might be too favorable and could negatively impact Wall Street by maintaining inflation and interest rates at high levels.
The S&P 500 dropped 1.5%, marking its fourth losing week out of the last five. The Dow Jones Industrial Average fell by 696 points, or 1.6%, and the Nasdaq composite also decreased by 1.6%.
Stocks were influenced by the bond market, where yields surged, adding pressure after a report indicated that U.S. employers added significantly more jobs last month than economists had anticipated.
Such strong hiring is undoubtedly positive for job seekers. However, it could also maintain upward pressure on inflation by sustaining economic activity. This, in turn, might deter the Federal Reserve from implementing the interest rate cuts that Wall Street favors. Lower rates can stimulate the economy and increase investment prices.
The Fed has already suggested it will likely reduce rates fewer times this year than previously expected due to concerns about rising inflation. This is partly because some officials are seriously considering the potential impact of tariffs and other policies proposed by President-elect Donald Trump that could exacerbate inflation.
To be sure, Friday’s jobs report may not be as strong as it seems on the surface. While the overall number of hires in December blew past expectations, “manufacturing is still getting crushed,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“The macroeconomy may be fine,” he said, “but each individual’s microeconomy could look very different.”
The wage increases that employees are receiving are a key data point for the Fed, with last month's average hourly earnings rising by less than 4%. This is "what the Fed wants to see," according to Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute.
The detailed analysis caused Treasury yields to retract some of their initial gains after the jobs report was published. However, preliminary findings from another report later that morning highlighted the issue further. It indicated that U.S. consumers are becoming more pessimistic about future inflation trends.
Consumers now anticipate inflation to be 3.3% in the coming year, up from 2.8% last month. This is the highest figure in the University of Michigan's survey since May. Expectations are worsening among various demographics, especially in lower-income households, according to Joanne Hsu, director of the Surveys of Consumers.
The challenge for Wall Street is that when traders were pushing U.S. stock indexes to numerous records last year, they were counting on a series of rate cuts from the Fed. If fewer cuts occur than anticipated, stock prices may need to decrease, or company profits must increase significantly to compensate.
Smaller companies are more vulnerable to higher interest rates than larger ones due to their borrowing needs for growth. The Russell 2000 index of smaller stocks fell 2.2%.
Constellation Brands plunged 17.1%, marking the largest loss in the S&P 500, after the company, known for Modelo beer and Robert Mondavi wine, posted weaker profit and revenue for the latest quarter than analysts predicted. CEO Bill Newlands noted that the company is observing cautious spending from customers seeking better value.
Insurance firms were also under pressure as wildfires continue to rage in the Los Angeles area. Many of the destroyed homes were in upscale areas where prices can exceed $3 million, potentially impacting insurers' profits. Allstate dropped 5.6%, Travelers fell 4.3%, and Chubb decreased 3.4%.
Delta Air Lines soared 9% after it reported stronger-than-expected profits for the last quarter of 2024. The airline noted robust travel demand, which increased towards the end of last year, and expects this trend to persist into 2025.
Comments