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US stocks experienced a significant decline on Friday, with the Dow Jones dropping by 697 points. This downturn followed a strong December jobs report that raised concerns regarding potential Federal Reserve interest rate cuts in 2025.
The economy added 256,000 jobs in December, which was well above the expected 155,000. Additionally, the unemployment rate decreased to 4.1% from 4.2% in November. This robust labor market data led to a rise in bond yields, with the 10-year US Treasury yield reaching its highest level since October 2023, peaking at 4.79%.
- Market analysts now predict only one 25-basis point rate cut from the Fed this year.
- Some economists consider this forecast to be overly optimistic.
- The strong labor market and ongoing inflation above target levels suggest the conclusion of the Fed’s cutting cycle.
Furthermore, there are indications that the market may be anticipating no rate cuts for 2025, with predictions that the 10-year yield could exceed 5%. Historically, increasing bond yields have pressured stock market valuations, raising the likelihood of a market correction in the near future.