- The Dow fell 700 points on Friday after December’s NFP data surge.
- Market bets on Fed rate cuts have fallen, and interest rate traders now expect a single rate cut this year.
- Consumer sentiment and inflation expectations also increased, further weakening risk appetite.
The Dow Jones Industrial Average (DJIA) fell sharply on Friday after investor sentiment deteriorated following a robust nonfarm payrolls (NFP) report that showed a much higher employment rate than most investors expected. University of Michigan (UoM) consumer research also showed that the average U.S. citizen expects higher, not lower, inflation over the next five years, further dampening risk appetite for stocks as both robust job growth and high inflation expectations among consumers bode poorly for further growth by the Federal Reserve (Fed) and interest rate cuts.
Net fresh U.S. NFP jobs in December rose to 256,000, well above the expected 160,000, while the November print saw a slight downward revision to 212,000. The individual consumer sentiment index fell to 73.2 in January, down from 74.0 in the previous month and marked a deeper deterioration than the expected 73.8. Expectations for five-year standalone consumer inflation also increased to 3.3%, a significant enhance from the previous release of 3.0%.
Markets are essentially retreating from Fed expectations for rate cuts in 2025 and abandoning stocks as investors flock to the protected haven dollar. Major institutions like Bank of America (BAC) and Goldman Sachs (GS) are releasing post-NFP research notes that essentially acknowledge that everyone now expects even smaller rate cuts from the Fed in 2025 than before. According to CME’s FedWatch tool, interest rate traders are also picking up on this sentiment: interest rate markets are pricing in just one 25-basis-point rate cut this year, and that won’t happen until June at the earliest.
Dow Jones News
The Dow Jones is broadly lower on Friday, with fewer than ten stocks able to find room in positive territory to end the trading week. The biggest losers were The Travelers Companies (TRV), which fell 4.3% on the day to $232 per share. Hot on its heels was Goldman Sachs, which fell 3.5% and fell below $560 a share for the first time in almost a month.
Dow Jones Price Forecast
Friday’s post-NFP surplus pushed the Dow Jones within a stone’s throw of its 200-day exponential moving average (EMA) near 41,160. The Dow Jones Industrial Average will close below 42,000 for the first time since early November, and the main stock index is down more than 7% from the record high of 45,065 in December.
The ongoing decline in the Dow Jones index is sure to raise fresh fears of a long-term downturn; however, price action continues to hold north of the last major low, which was also supported by the 41,600 level. Despite needy performance in December and similar performance in January, the Dow is emerging from a stellar bull run that has seen the DJIA rise nearly 20% from bottom to top through 2024.
