Stocks Slide as Tariff Angst Adds to Price Worries: Markets Wrap

This content was published on February 7, 2025 - 19:17

11 minutes

(Bloomberg) — Wall Street traders already concerned about the potential impacts of US tariffs on inflation didn’t get much relief from economic data that only underscored concerns over price pressures, reinforcing speculation the Federal Reserve will be in no rush to cut interest rates.

Stocks remained lower as President Donald Trump said he will announce reciprocal levies next week in an escalation of his trade war with top US partners. Equities were already under pressure Friday after data showed a slide in consumer sentiment amid worries over inflation. Mixed jobs figures highlighted a moderating — yet healthy — labor market, and a jump in wages that could fuel prices. Bonds fell across the curve. Megacaps sold off after a disappointing outlook from Amazon.com Inc.

The latest economic readings help explain why Fed policymakers have signaled they aren’t in a hurry to lower borrowing costs after three rate cuts last year. While traders are still betting the next move will be a cut, they are only fully pricing one in September.

“The broader picture is still one of labor market resilience and sustained wage pressures,” said Seema Shah at Principal Asset Management. “This simply gives the Fed little reason to cut policy rates immediately.”

The S&P 500 fell 0.5%. The Nasdaq 100 lost 0.7%. The Dow Jones Industrial Average slid 0.6%. A gauge of the “Magnificent Seven” megacaps sank 1.3%. Amazon dropped 3.5%. Expedia Group Inc. rallied 15% on solid gross bookings. The Russell 2000 dropped 0.9%.

The yield on 10-year Treasuries advanced six basis points to 4.49%. The Bloomberg Dollar Spot Index rose 0.3%.

Nonfarm payrolls increased by 143,000 last month after a revised 307,000 gain in December. The unemployment rate was 4.0% — the survey used to produce the number incorporated separate revisions to reflect a new population estimate at the start of the year, which makes the figure incomparable to prior months. Meantime, hourly wages climbed 0.5%.

“Strong wage growth is good for workers and should be viewed as a positive for consumer spending,” said Bret Kenwell at eToro. “However, Wall Street has watched this gauge closely over the last few years, worrying that too strong of wage growth could push inflation higher.”

Outside of the headline result, the latest jobs report is not cause for alarm, he said.

“While some investors may worry about implications for inflation or rate cuts, make no mistake about it: It’s better to have a strong economy and labor market than a deteriorating environment. Remember, stocks tend to do well amid mild inflation,” Kenwell concluded.

To Neil Dutta at Renaissance Macro Research, the fixed-income reaction to the data is an opportunity to go long the asset class.

“Ultimately, the Fed will need to cut rates because too many things don’t work with rates up this high,” Dutta said. “Looking at the data itself, cyclical areas of the labor market are sluggish. Goods producing employment is soft and total hours in the manufacturing sector fell.”

Yet Dutta also notes that the low level of unemployment likely keeps the Fed on the sidelines.

“The Fed is not in a forgiving mood right now,” he said. “ They are looking for reasons to wait and today’s report gives them one.”

Fed Governor Adriana Kugler said inflation has fallen significantly, but warned recent progress has been slow and that considerable uncertainty remains. Meantime, Minneapolis Fed President Neel Kashkari told CNBC he expects inflation will continue to cool toward the 2% target, allowing policymakers to lower interest rates “modestly” by the end of the year.

Lindsay Rosner at Goldman Sachs Asset Management thinks the Fed is likely to be cautious about reading too much into today’s report.

“Either way you spin it, the Fed should feel quite cozy sitting tight the rest of winter knowing that it was the right decision to hit the pause button on rate cuts,” said Charlie Ripley at Allianz Investment Management.

The Fed has already been pushing out expectations for its next rate cut, and this jobs report probably justifies that approach — if not nudging them to push out expectations even further, according to Jason Pride at Glenmede.

Reaction to Jobs Data:

Florian Ielpo at Lombard Odier Investment Managers:

Not as cold as you’d think.

This report is not a game-changer for investors: the job market remains strong, which is positive for future profits and signals that short-term rates could remain higher in the US than elsewhere for a longer period.

Ellen Zentner at Morgan Stanley Wealth Management:

A lower-than-expected January payrolls number was more than offset by upward revisions to November and December’s totals and a downtick in the unemployment rate. Those who’d hoped for a soft report that would nudge the Fed back into rate-cutting mode didn’t get it.

Scott Wren at Wells Fargo Investment Institute:

This report does not change our view that the labor market is likely to gradually decelerate in coming quarters and continue to look for the unemployment rate to move higher by the end of this year. We see the Fed cutting just one time in 2025 with the fed funds target ending the year in the 4%-4.25% range.

Jeffrey Roach at LPL Financial:

This morning’s report may be considered a Goldilocks report – not too hot and not too cold. In general, labor demand last year was softer than originally reported but that trend temporarily reversed in November and December. An unemployment rate at 4% is considered very low, giving the Fed reason to keep fed funds unchanged in the near term.

Mark Gibbens at BOK Financial:

The report showed a domestic labor market that keeps on dancing to a positive tune. On the negative side of the ledger was average hourly earnings. This level of growth in wages should keep rate cuts by the Fed on the back burner for now.

Jeff Schulze at ClearBridge Investments:

The January jobs report missed consensus expectations but strong positive revisions to the prior two months and a drop in the unemployment rate make this a more solid print than the headline numbers suggest at first glance. One fly in the ointment is the pickup in average hourly earnings, however, we believe part of the upside is due to mix-shift distortions resulting from extreme weather, and wages are still running at a pace consistent with the Fed’s 2% target on a year-over-year basis.

This release should keep the Fed in wait-and-see mode.

Importantly, today’s labor data reaffirms the resilient macro narrative that has emerged over the past several quarters following fears of a slowing labor market last summer. While a knee-jerk reaction could put modest upward pressure on long-term bond yields and, in turn, pressure equity market valuations, this release should support risk assets over the intermediate term as a solid labor market and economic backdrop help validate embedded earnings expectations.

David Russell at TradeStation:

The Fed meeting was a non-story and so is the jobs report. Aside from the payrolls miss, unemployment, wages and revisions were strong. This keeps the Fed on hold and focused on the price side of its mandate. It’s consistent with a strong economy with the potential of lower rates later in the year, but not decisive one way or the other.

Bryce Doty at Sit Investment Associates:

Today’s employment report probably keeps the Fed on hold for probably one more meeting. While jobs weren’t exceptional my any means, a lower unemployment rate and a strong increase in wage growth means the labor market is still healthy.

Mark Hamrick at Bankrate:

While inflation has remained elevated, the still solid job market provides a solid underpinning for Americans to focus on their financial goals. Affordability challenges abound given elevated prices and interest rates.

The Federal Reserve has another round of inflation and employment data to mull before the next scheduled announcement on March 19. It is seen remaining patient before making another interest rate move having recently opted to stand pat.

Fawad Razaqzada at City Index and Forex.com:

Overall, the non-farm payrolls data was mixed-to-positive. The strong wages growth point to inflationary pressures, suggesting no imminent rate cuts should be expected.

Glen Smith at GDS Wealth Management:

While Friday’s jobs report was weaker-than-expected, the prior two months saw significant upwards revisions in the number of jobs created, so we don’t expect Friday’s report to derail the Federal Reserve’s patient stance when it comes to rate cuts. We would need to see multiple weaker jobs reports in a row in order for the Fed to cut interest rates sooner.

Friday’s weaker-than-expected jobs report for January should be viewed through the lens of the blowout jobs report from December, which saw a significant upward revision. It’s understandable that job growth slowed slightly in January after a significant hiring boost towards the end of 2024.

Corporate Highlights:

Amazon.com Inc. warned investors that it could face capacity constraints in its cloud computing division despite plans to invest some $100 billion this year, with most of the money going toward data centers, homegrown chips and other equipment to provide artificial intelligence services.
Apple Inc. plans to unveil a long-anticipated overhaul of the iPhone SE in the coming days, a move that will modernize its lower-cost model in a bid to spur growth and entice consumers to switch from other brands.
Pinterest Inc. posted strong holiday-quarter revenue and gave an upbeat forecast for sales in the current period, a sign that its advertising business continues to grow despite increased competition from much larger rivals in the social networking space.
Cloudflare Inc., a software company, reported fourth-quarter results that beat expectations.
Expedia Group Inc. posted better-than-expected gross bookings in the final months of 2024, reflecting resilient demand for travel during the winter holiday season.
Nikola Corp. is exploring a possible bankruptcy filing, according to people familiar with the matter, following a tumultuous period in which the electric truck maker has swung between stock-market darling and scandal-plagued enterprise.
Porsche AG is falling further off track from lofty targets set during its splashy stock listing two years ago, with costs mounting from executives having misjudged how eager sports-car buyers were to go electric.

Some of the main moves in markets:

Stocks