S&P 500 Falls as 'Surprising' Jobs Report Reduces Chances for 2025 Rate Cuts

The prospects for at least one rate cut in 2025 dimmed thanks to a ‘surprising’ jobs report. The S&P 500 (Index: SPX) declined 1.9% from the previous Friday’s close to end the trading week ending on Friday, 10 January 2025 at 5,827.04.

The jobs report is more surprising than has been reported, which we’ll discuss in a separate analysis in the very near future. As a preview, much of the reported net increase in new jobs is unusually concentrated within a particular and very narrow demographic.

With the surprisingly strong December 2024 employment situation report, investors reacted by pushing the expected timing of the Fed’s lone expected rate cut for 2025. The CME Group’s FedWatch Tool indicates the timing single rate cut it was expecting in 2025 changed from 7 May to 18 June (2025-Q2).

That kept the forward-looking focus of investors on the second quarter of 2025. In the latest update to the alternative futures chart, which we’ve rolled forward to reveal the potential trajectories the S& 500 is likely to take during 2025-Q1, we find the trajectory of the index falls within the lower range the dividend futures-based model projects will hold when investors are focused on 2025-Q2.

The trading week was shortened by a market holiday on Thursday, 9 January 2025 to mark former U.S. President Jimmy Carter’s death. Here are the week’s market moving headlines:

Monday, 6 January 2025

• Signs and portents for the U.S. economy:

• Oil prices ease as weak economic data offsets higher US winter storm heating demand
• Trump’s policies may not prove inflationary, Bernanke, others say
• US manufacturing PMI rises to nine-month high, but challenges loom
• Weak demand for aircraft weighs down US factory orders in November

Fed minions say they need to keep mopping up Bidenflation:

• Fed’s Kugler, Daly say job not done on inflation

• Fed’s Kugler says data will drive Fed policy choices amid uncertainty

Fed’s Cook: Further rate cuts can come cautiously

Bigger trouble, bailouts developing in China:

• China hurries to shore up sliding yuan and stock markets

• Morning Bid: China two-year yield eyes fall below 1.00%
• Exclusive: Chinese exchanges ask big fund managers to restrict stock selling

China seeks to bolster ports and aviation hubs in western regions

China Effectively in State of Constant Stimulus

Chief BOJ minion claims BOJ will keep hiking Japan’s interest rates:

• BOJ’s Ueda vows to keep hiking rates with focus on risks

Bigger trouble developing in Eurozone:

• Euro zone economy ended 2024 in precarious state, PMI shows

S&P 500, Nasdaq end higher, driven by tech stocks

• Nasdaq, S&P, and Dow closed mostly higher to start the shortened trading week

Tuesday, 7 January 2025

• Signs and portents for the U.S. economy:

• Oil prices rise as concerns grow over supply disruptions

• Global crude exports dip as trade routes reshuffle again

US service sector growth picks up; input prices gauge highest in nearly two years

US labor market stable as job openings rise, hiring eases in November

US corporate bankruptcies hit 14-year high as interest rates take toll

Bigger trouble developing in China:

• China’s tumbling bond yields intensify ‘Japanification’ risks

ECB minions get new problem they didn’t want:

• Euro zone inflation jumps on higher energy costs

Wall Street ends lower as inflation fears mount

• Nasdaq slides 2%, S&P slips 1% as Wall Street sells off on revised rate cut bets

Wednesday, 8 January 2025

• Signs and portents for the U.S. economy:

• Oil prices down on US fuel stocks build, dollar strength
• Bond market selloff jolts global investors as ‘tantrum’ hovers

Fed minions say their failure to fix persistent Bidenflation to slow pace of future rate cuts:

• Fed’s Waller: More cuts likely though timing depends on inflation progress
• Fed minutes show Wall Street pushed back expected end of balance sheet drawdown
• Fed officials worry Trump policies may lengthen inflation fight

Bigger trouble, stimulus developing in China:

• China expands consumer trade-in scheme to revive economic growth
• China expects increase in New Year travel numbers, despite economic doldrums

ECB minions think bigger trouble developing in Eurozone because people not wanting to get out there and spend, also think they’ll be done with rate cuts by Summer 2025:

• Euro zone households likely to keep saving to rebuild wealth, ECB says
• ECB could reach neutral rate by summer, Villeroy says

Wall Street little changed as investors assess inflation path

• Stocks end choppy session mixed; Fed minutes show inflation concerns, less rate cuts

Thursday, 9 January 2025

• Signs and portents for the U.S. economy:

• US hiring announcements in 2024 lowest in nine years
• Los Angeles wildfire economic loss estimates top $50 bln
• Oil prices steady as markets weigh demand against US inventories

Some Fed minions think they’re done with rate cuts:

• Fed’s Bowman: supported Dec. rate cut as ‘final’ recalibration step
• Fed’s Schmid says central bank ‘near’ neutral interest rate level
• Fed’s Collins says now is time for patient, gradual approach to rate cuts
• Fed’s Harker still expects rate cuts but says imminent move not needed

Bigger trouble, stimulus developing in China:

• China’s consumer inflation slows as demand weakens
• China’s consumer prices stall in 2024 on feeble demand

BOJ minions worried they might have to hike Japan interest rates:

• BOJ sees widening wage hikes, signals chance of near-term rate hike
• Japan November household spending falls as price pressures persist

Friday, 10 January 2025

• Signs and portents for the U.S. economy:

• Surprising Dec US payrolls jump supports longer Fed pause

• Jobs report fuels Treasury yield surge as markets brace for 5% threshold

Union, employers credit Trump in US port deal that may shape future talks

LA wildfire insured losses total billions of dollars, ratings agencies say

• Insurance industry stares at potential record-breaking losses from Los Angeles wildfires

Bigger trouble, stimulus developing in China:

• China’s central bank halts bond buying as yuan struggles
• China central bank is moving faster towards its policy limits
• China has ample fiscal space to bolster growth this year

Wall Street’s tough week pushes S&P 500 into negative territory for the new year

• Wall Street ends lower as blowout job data spooks traders
• US property and casualty insurers slide as Los Angeles wildfire losses mount

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q4 rose to +2.7% from the previous week’s +2.4% annualized growth estimate.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon showing a smiling bear taking a box away from a sad Wall Street Bull. The box has the words ‘Future Rate Cuts’ written on it.”