Job growth picked up in December and smashed estimates, with the U.S. labor market adding 256,000 jobs last month, far exceeding the estimate of 155,000.However, despiterobust economic data, major stock indices fell sharply on Jan. 10, 2025. The Dow Jones Industrial Average plunged 697 points, while the S&P 500 Composite and Nasdaq dipped 1.5% and 1.6%, respectively. While the impressive job growth highlights the economy's resilience, it also reignited fears of persistent inflation and diminished the likelihood of imminent interest rate cuts by the Federal Reserve.
JPMorgan economists have noted that the continued strength in job creation makes a rate cut unlikely in the first half of 2025, as the Fed remains focused on containing inflation. On the other hand, Goldman Sachs has cautioned that while strong labor market data supports higher rates in the short term, slowing wage growth and signs of cooling inflation could pave the way for rate cuts later this year, provided no new economic shocks emerge.
Adding to market pressures, bond yields surged following the release of the jobs data. The 10-year Treasury Yield climbed to 4.76%, its highest level since November 2023, and the 30-year Treasury Yield rose to 4.95%. These increases made fixed-income investments more attractive relative to equities, intensifying the selloff in stock markets.
Shares of Constellation Brands, Inc. STZ, The Allstate Corporation ALL, PG&E Corporation PCG and $Citigroup Inc(C-N)$. C lost 17.1%, 5.6%, 10.8%, and 2.5%, respectively, on Friday. While PG&E holds a Zacks Rank #2 (Buy) at present, Constellation Brands, Allstate, and Citigroup carry a Zacks Rank #3 (Hold), reflecting a neutral outlook. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Constellation Brands saw its shares plunge after the company lowered its fiscal 2025 earnings outlook. A 14% decline in wine and spirits sales underscored shifting consumer preferences and retailer inventory reductions. Similarly, Allstate declined as rising claims from Southern California wildfires might put pressure on the insurer's financial stability. PCG declined due to concerns about rising liabilities from wildfire-related claims. Meanwhile, Citigroup’s stock declined, reflecting broader worries about the banking sector’s exposure to higher borrowing costs and slower loan growth.
Due to an anticipated delay in a rate cut, higher borrowing costs could weigh on insurers. Additionally, rising claims from wildfires exacerbate the financial strain, especially for Allstate, which is already grappling with increased claims from natural disasters. For PG&E, the risk of higher liabilities from fire-related claims could be a concern. The combination of these factors may lead to heightened volatility and potential declines in stock prices for these companies.
A delay in interest rate cuts could have both positive and negative impacts on banking companies. On the positive side, higher rates can improve banks' net interest margins, potentially boosting profitability from loans and deposits. However, prolonged elevated rates might reduce loan demand, especially for mortgages and consumer lending, which could slow revenue growth.
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