U.S. equity indexes experienced a significant decline as robust nonfarm payroll figures and escalating inflation expectations led to a surge in government bond yields. This development has heightened the probability that interest rates may remain elevated for an extended period, impacting investor sentiment across the board. The S&P 500 saw a notable drop of 1.7%, closing at 5,816.2, while the Nasdaq Composite fell by 2% to a level of 19,091.3.
The Dow Jones Industrial Average also faced a decrease, settling 1.7% lower at 41,932.5. Virtually all sectors were marked by red during intraday trading, with financials, technology, and real estate leading the downturn. Analyzing the December employment report, data revealed a rise in nonfarm payrolls by 256,000, which surpassed the anticipated increase of 165,000 jobs as per a survey conducted by Bloomberg.
Additionally, the report noted a downward revision for November payrolls to a 212,000 increase, alongside an upward adjustment for October payrolls reflecting a gain of 43,000. This resulted in a net downward revision of 8,000 jobs for these periods. The unemployment rate experienced a slight decline to 4.1% in December from a previous rate of 4.2% in November, outperforming market expectations that projected the rate to hold at 4.2%. Hourly earnings rose by 0.3%, aligning with expectations, and followed a slightly higher increase of 0.4% in November.
Year-over-year, hourly earnings have increased by 3.9%, though this is slower compared to the 4% pace recorded in November. According to TD Economics, there were 'virtually no signs of underlying weakness in the labor market' based on the report’s findings. The research team anticipates that the Federal Reserve will likely remain on policy hold this month.
However, the data over the next few months is deemed 'critical in shaping the final decision' regarding interest rates in March. The CME Group's FedWatch Tool indicated a substantial increase in the probability that the Federal Reserve will opt for a policy hold during all its rate-setting meetings leading up to December.
Specifically, the likelihood of maintaining the target rate within the 4.25% to 4.5% range surged to 72%, a significant rise from 56% noted just a day earlier. The Fed's next announcement is scheduled for January 29. In other economic insights, the University of Michigan's preliminary consumer sentiment index experienced a decline, slipping to 73.2 in January from 74.0 reported in December.
This contrasts with forecasts that suggested stability in this measure according to a Bloomberg-compiled survey. Participants projected a one-year inflation expectation of 3.3%, sharply up from 2.8% and marking the highest level since May 2024. The five-year inflation outlook also increased to 3.3% from a previous 3% just a month ago. U.S.
Treasury yields saw a substantial rise intraday, with the 10-year yield increasing by 7.4 basis points to reach 4.76%, after briefly touching a 52-week intraday high of 4.79%. The two-year yield climbed significantly as well, up 11.3 basis points to settle at 4.38%. In company-specific news, shares of Walgreens Boots Alliance experienced a remarkable surge of 25% intraday, declaring itself the top performer on the S&P 500 following fiscal Q1 results that exceeded analyst expectations, highlighting a year-over-year revenue increase.
Meanwhile, Constellation Energy announced plans to acquire privately-held energy firm Calpine in a cash-and-stock deal worth approximately $26.6 billion, including debt. This news led Constellation’s shares to soar by 22% during intraday trading, making it among the top gainers on both the S&P 500 and Nasdaq indices. In the commodities market, West Texas Intermediate crude oil futures experienced a robust increase of 3.3%, trading at $76.33 per barrel.
On a regulatory note, reports circulated that the U.S. plans to sanction 180 tankers, oil traders, two oil companies, as well as specific oil executives in Russia. This information stems from a document that turned up among traders in Asia and Europe, which Reuters stated could not be independently verified.
The media buzz follows a decision made by a Chinese port operator to prohibit sanctioned tankers from Russia and Iran earlier this week. Furthermore, gold futures advanced by 1.2%, trading at $2,722.21 an ounce, with silver showing identical performance, rising 1.2% to reach $31.38 per ounce..