The Impact of NFP Figures on the Dow Jones
- The Dow Jones tumbled 700 points on Friday after NFP figures surged in December.
- Market bets for Fed rate cuts sank, rate traders now expect a single rate cut this year.
- Consumer sentiment and inflation expectations also rose, further hitting risk appetite.
The Dow Jones Industrial Average (DJIA) faced a significant drop on Friday due to a robust Nonfarm Payrolls (NFP) jobs report. The report revealed a higher rate of hiring than expected, which negatively impacted investor sentiment. Additionally, the University of Michigan (UoM) consumer survey results indicated an increase in inflation expectations among US spenders over the next five years. These factors led to a decline in risk appetite for equities, as strong job growth and high consumer inflation expectations are not conducive to more Federal Reserve (Fed) rate cuts.
The Numbers Behind the NFP Report
In December, the US NFP net job additions soared to 256K, surpassing the anticipated 160K. November’s figures were slightly revised downward to 212K. On the consumer front, the UoM Consumer Sentiment Index dropped to 73.2 in January, below the expected 73.8. Furthermore, UoM 5-Year Consumer Inflation Expectations increased to 3.3%, up from the previous 3.0%.
As a result of these developments, market expectations for Fed rate cuts in 2025 have shifted, causing investors to retreat from equities and seek refuge in the US Dollar. Major institutions like Bank of America (BAC) and Goldman Sachs (GS) have released research notes acknowledging the decreased likelihood of Fed rate cuts. The CME’s FedWatch Tool reflects this sentiment, with interest rate traders pricing in only a single 25 bps rate cut this year, potentially in June.
Dow Jones Performance and Forecast
On Friday, the Dow Jones experienced broad declines, with only a handful of stocks managing to stay in positive territory. The Travelers Companies (TRV) led the losses, dropping 4.3% to $232 per share. Following closely was Goldman Sachs, which fell 3.5% and dipped below $560 per share for the first time in nearly a month.
Post-NFP, the Dow Jones is approaching the 200-day Exponential Moving Average (EMA) near 41,160. The index is on track to close below the 42,000 level for the first time since November, marking a more than 7% decline from its record highs in December. Despite recent setbacks, the Dow Jones remains above the last significant swing low supported by the 41,600 level.
Understanding the Nonfarm Payrolls Indicator
The Nonfarm Payrolls release provides insight into the number of new jobs created in the US non-agricultural sector during the previous month. This data, released by the US Bureau of Labor Statistics (BLS), can have a significant impact on market volatility. A high reading is typically bullish for the US Dollar (USD), while a low reading is seen as bearish. However, market reaction also depends on factors like previous months’ revisions and the Unemployment Rate, as the overall assessment of the BLS report influences market sentiment.
Overall, the recent market movements in response to the NFP figures and related economic indicators highlight the importance of staying informed and adaptable in the ever-changing financial landscape.