Interest rates are one of the things Wall Street cares most about because lower rates can lead to higher prices for stocks and other investments. The downside is they can also give inflation more fuel.
For Scott Wren, senior global market strategist at Wells Fargo Investment Institute, the jobs report did nothing to change his forecast for the Fed to cut the federal funds rate just once in 2025. That’s a touch more conservative than many traders on Wall Street, who collectively see a 45 per cent chance the Fed will cut at least twice, according to data from CME Group. Of course, some traders are also betting on the possibility for zero cuts.
Wren said financial markets could stay shaky in the near term, not only because of uncertainty about interest rates but also about Trump’s tariffs and other unknowns around the world.
After rocking financial markets at the start of this week, worries about a potentially punishing global trade war had eased a bit after Trump gave 30-day reprieves for tariffs on both Mexico and Canada.
In the meantime, stocks of big US companies continue to swing as they report how much profit they made during the last three months of 2024. Most are reporting better results than expected, which is typical, but that’s not always enough.
Amazon, one of Wall Street’s most influential companies, topped analysts’ expectations for earnings at the end of 2024, but its stock nevertheless fell 4.1 per cent. Investors focused instead on its forecast for upcoming revenue, which fell short of analysts’ expectations.
Homebuilders also tumbled to sharp losses as fewer cuts to interest rates by the Fed could help keep mortgage rates high. D.R. Horton fell 5 per cent, and Lennar sank 4.2 per cent.
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On the winning side of Wall Street was Expedia Group, which leaped 17.3 per cent after reporting better profit for the last three months of 2024 than analysts had forecast.
Expedia CEO Ariane Gorin said demand for travel during the latest quarter was stronger than expected, and the company is also bringing back its dividend for investors. It had suspended its payouts to shareholders in 2020 after the COVID-19 pandemic crushed the travel industry.
All told, the S&P 500 fell 57.58 points to 6,025.99. The Dow Jones Industrial Average dropped 444.23 to 44,303.40, and the Nasdaq composite sank 268.59 to 19,523.40.
In the bond market, the 10-year Treasury yield rose to 4.48 per cent from 4.44 per cent late Thursday. The two-year Treasury yield, which more closely tracks expectations for the Fed, rose more. It climbed to 4.28 per cent from 4.22 per cent.
A fear among economists is that when US households expect inflation to be high in the future, they could begin buying things in advance and making other moves that can leadto a self-fulfilling cycle that worsens inflation. That could push the Fed to keep the federal funds rate higher than it otherwise would.
In stock markets abroad, indexes fell modestly across Europe after finishing mixed in Asia.
AP
