SPX Spotlight - Friday, Jan 10, 2025: Market Plunges on Robust Jobs Report
Surprising strong jobs report dampened expectations for imminent interest rate cuts.
Introduction
The S&P 500 (SPX) experienced its worst drop since mid-December, sliding 1.5% to close at 5,827.04 on Friday, January 10, 2025. This sharp decline was triggered by an unexpected surge in hiring, which dampened hopes for early interest rate cuts by the Federal Reserve. Most sectors saw losses, with only Energy, Health Care, and Communications showing slight gains
Market Drivers and Economic Reports
The robust employment data led to a surge in Treasury yields, with the 10-year yield reaching 4.75%, its highest level since November 2023.
This increase in yields exerted pressure on rate-sensitive sectors, notably real estate, which was among the hardest hit.
In the technology sector, Nvidia's shares dropped 4% amid reports of potential new restrictions on advanced chip sales by the Biden administration.
Other major tech companies, including Apple, Microsoft, Amazon, and Alphabet, also saw their stock prices decline.
Conversely, Delta Air Lines experienced a rally of over 6% after surpassing earnings forecasts, and Walgreens saw a 15% surge following positive earnings results.
Despite these individual gains, the overall market sentiment was bearish, driven by fears that the Federal Reserve might maintain elevated interest rates longer than previously anticipated to combat persistent inflation.
This outlook has led investors to reassess their expectations for monetary policy in 2025, contributing to increased market volatility.
Technical Analysis
Recap
We broke the trendline and the closed below liquidity zone. This outlook is extremely bearish as we are in gap fill zone and the only thing holding is 200 EMA where its currently resting.
Bull Case
We are forming a strong supporting trendline and we may get a bounce towards the upper trendline.
Bear Case
On a 4 hour chart, we may form a bearish candle to form structure and lead to fill the gap. We have couple of support in that zone for the price to lead there.
Market Sentiment and Key Indicators
Volatility has been choppy for the past two days and VIX is currently resting in a zone where we had strong wicks forming from previous multiple candles.
This rejection zone if respected, we can head downwards. However, the trendline may prevent closing below the volatility consolidation zone. Any weakness in volatility may help us retest 17.00 level.
Key Takeaways & What’s Next
The unexpected surge in hiring has dampened hopes for early interest rate cuts, causing a shift in market sentiment.
With the Q4 2024 earnings season about to kick off, corporate results will be crucial in determining market direction. Strong earnings could help offset rate cut concerns
Markets may open with continued pressure from Friday's jobs report. Watch for any stabilization attempts around key technical levels.
Economic data releases or corporate news on tuesday that could provide further insight into the strength of the economy and its implications for monetary policy.
Closing Thoughts
Given the sudden shift in narrative, we may see increased volatility in the coming days as market participants reassess their positions and expectations. This could present both risks and opportunities.
What's your take on Friday's market action? Do you see this as a buying opportunity or the start of a larger pullback? Share your thoughts in the comments below.