Stock Market Update

[BRIEFING.COM] The major equity indices show sharp declines today, responding to the jump in Treasury yields following this morning's labor market data. The S&P 500 sports a 1.5% decline and the Nasdaq Composite trades 1.6% lower. The Dow Jones Industrial Average, which was down more than 700 points at its session low, trades about 640 points lower. 

Nonfarm payrolls increased by a stronger-than-expected 256,000, the unemployment rate slipped to 4.1% from 4.2%, average hourly earnings growth year-over-year was a sturdy 3.9%, and more people were employed. The negative vibe in the market stems from worries about sticky inflation fueled by a strong labor market and earnings growth, along with concerns that the Fed won't cut rates for an extended period.

The 10-yr yield was at 4.70% ahead of the report and jumped to 4.78% in response. It sits at 4.75% now, up six basis points from yesterday. The 2-yr yield was at 4.29% just before 8:30 ET and sits at 4.37% now, up ten basis points from yesterday.

Just about everything is coming along for the downside ride. Ten of the 11 S&P 500 sectors are lower and market breadth shows a strong negative skew under the index surface. Decliners lead advancers by a 9-to-2 margin at the NYSE and by a 7-to-2 margin at the Nasdaq.

Some stocks are going against the downside grain, trading higher with specific catalysts. Delta Air Lines (DAL 67.34, +5.94, +9.7%) and Walgreens Boots Alliance (WBA 11.65, +2.43, +26.5%), which reported better-than-expected earnings results, are standouts in that respect. Taiwan Semiconductor Manufacturing Company (TSM 208.75, +1.63, +0.8%) is another winner after reporting record fourth quarter revenues.

Energy-related stocks have also traded higher, leading the S&P 500 energy sector (+0.4%) to trade alone in positive territory. This price action is related to commodity prices. WTI crude oil futures are 3.1% higher at $76.25/bbl. Natural gas futures are also higher, 4.5% better than yesterday at $3.38/mmbtu.

Reviewing today's economic data:

• December Nonfarm Payrolls 256K (Briefing.com consensus 154K); Prior was revised to 212K from 227K,December Nonfarm Private Payrolls 223K (Briefing.com consensus 140K); Prior was revised to 182K from 194K,
• December Avg. Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior 0.4%, December Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, December Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.3
  • The key takeaway from the report for the market is that it was perhaps too good, which makes it think one of two things, if not both: the Fed may have made a mistake cutting rates as aggressively as it did at the end of 2024, thereby fueling the prospect of sticky inflation because the labor market is still strong, and there isn't going to be another rate cut for an extended period.
• January Univ. of Michigan Consumer Sentiment - Prelim 73.2 (Briefing.com consensus 73.5); Prior 74.0
  • The key takeaway from the report is that consumers' worries about the future path of inflation increased, which is not what the Fed wants to hear, especially as plans to implement new tariffs loom on the near horizon.