Stock Market Roars Back: S&P 500 Up 1.2%, Dow Jumps 1%

The US stock market showed remarkable resilience, bouncing back strongly from its deepest sell-off in 2024. The Standard & Poor’s 500 (S&P 500) index, a crucial benchmark for US equities, climbed by an impressive 1.2%. The Dow Jones Industrial Average also saw gains, rising nearly 1%. The Nasdaq Composite, which had experienced a significant drop of over 2% in the previous session, led the recovery with a notable 1.3% increase.

Fed Chair’s Caution on Rate Cuts

Federal Reserve Chair Jerome Powell’s cautious stance on immediate interest rate cuts significantly influenced market dynamics. Powell’s measured assessment provided investors with a reality check, tempering earlier expectations for rapid rate reductions. Before his remarks, opinions were divided on whether the Fed would lower rates as soon as its next meeting in March. However, Powell’s comments shifted the consensus toward the view that rate cuts were unlikely in the near term.

Market data from the CME FedWatch tool reflected this change in sentiment, showing that now, about two-thirds of investors expect the Fed to hold rates steady in March. The majority now see rate reductions, whether modest or significant, as more likely by May.

Big Tech Earnings Awaited

The market was also buoyed by anticipation of quarterly earnings from the ‘Magnificent Seven’, including tech giants like Apple, Amazon, and Meta. These companies were expected to shed light on their financial health and future prospects, potentially impacting the stock market significantly. Notably, Meta’s stock price surged over 12% in after-hours trading following an earnings report that exceeded expectations. The company announced a $50 billion share buyback and a $0.50 cash dividend. Amazon’s stock also rose more than 4% post-market after reporting Q4 earnings that beat forecasts, along with a positive future outlook.

This contrasted with earlier Big Tech earnings reports from Microsoft and Alphabet, which disappointed investors and led to stock price declines.

Friday’s Job Market Snapshot: Dow Achieves Record Close

Investors looked forward to the January nonfarm payrolls report for insights into the job market’s health.

The Dow Jones Industrial Average led the recovery, closing at a record high of 38,519.84, erasing the previous session’s losses. The S&P 500 and the Nasdaq Composite also gained, contributing to the market’s overall rebound.

Earnings were a key market driver, with Apple, Amazon, and Meta significantly influencing the broader market’s upward movement. Merck’s strong fourth-quarter results also helped improve the Dow’s outlook.

Rate Cut Expectations Adjusted

Recent market fluctuations were largely due to overly optimistic rate-cut expectations and concerns about a weakening economy. This shift in sentiment was evident in bond yields, with the 10-year Treasury note yield falling to a one-month low of 3.87%.

As the week concluded, market participants closely monitored the economic landscape and its implications for future Federal Reserve decisions. With the year’s first jobs report due on Friday, investors remained on alert for new developments in the dynamic financial environment.