Investing.com — Stocks fell sharply on Friday as a stronger-than-expected jobs report dampened hopes for more Federal Reserve rate cuts this year.

It decreased 696.75 points, or 1.63%, to 41,938.45. The and fell 1.54% and 1.63%, closing at 5,827.04 and 19,161.63, respectively. The losses pushed all major indexes into negative territory for 2025.

The labor market showed unexpected strength in December, with payrolls rising to 256,000 compared to the 155,000 projected in a Dow Jones survey. The unemployment rate also fell, falling to 4.1% from an expected 4.2%. After the report, the increase was the highest point since late 2023.

After the jobs data, market expectations for a rate cut by the Federal Reserve in March fell significantly, with the CME FedWatch Tool putting the odds at 25%, down from 41% the previous day. The central bank previously cut rates by a quarter point in December.

For the week, all three major indexes posted consecutive losses. The S&P 500 and the Dow both fell 1.9%, while the Nasdaq Composite lost 2.3%.

Looking ahead this week, it was packed with key economic updates, including inflation, consumer, and manufacturing indicators. Highlights include Wednesday’s Consumer Price Index (CPI) report and Thursday’s retail sales data.

If concerns about continued inflation grow, long-term Treasury yields may rise further, potentially approaching the 5.00% threshold.

Combined with December’s jobs report, this week’s inflation numbers may indicate a reduction in risks to the labor market along with slower progress in curbing inflation. There is also the potential for tariffs to keep core PCE inflation at or above 2.5%

“Along with our expectations for a 0.3%m/m increase in the US December core CPI report next week and another strong retail sales report (0.6% control), the Fed is now likely to enter a long pause to assess the expansion status and the policies provided by the Trump administration,” said JPMorgan strategists led by Michael Feroli in a note.

“Although the Fed is unlikely to ease any time soon, it continues to have an asymmetric reaction function, making the debate about policy tightening unlikely for now,” they added.

Q4 2024 earnings season begins this week

In addition to key economic releases, investors’ attention will turn to the Q4 2024 earnings season, which is set to begin with reports from several large-cap financial companies.

Wall Street analysts projected an 8% year-over-year increase in earnings per share (EPS) for the S&P 500 as a whole in Q4, with a 6% growth forecast for the median. company.

According to Goldman Sachs, consensus estimates for Q4 earnings growth were among the highest since Q4 2021, just exceeding the expected 9% year-over-year EPS growth projected ahead of the period. of earnings in Q2 2024. Over the past 11 quarters, actual S&P 500 EPS growth has, on average, exceeded consensus forecasts by 4 percent points every quarter.

“We expect that corporations will continue to report strong earnings growth this quarter but that the magnitude of the beats will likely be smaller than in recent quarters given the higher bar,” said the strategists at Goldman.

What analysts are saying about US stocks

Goldman Sachs: “We expect the S&P 500 to rise 12% through the end of 2025 to our target of 6500. Earnings growth is the primary driver of S&P 500 gains.”

“We will reassess our S&P 500 earnings forecast after the season. Our current 2025 S&P 500 EPS growth forecast is +11% ($268), roughly in line with the top-down strategist consensus . We are now looking at the risks around our earnings forecast.”

Wedbush: “With concerns about the 10-Year heading toward the dangerous 5% threshold and the Fed now indicating a less dovish path for 2025, the Street sees a clear risk environment for technology stocks to start the year.”

“Ultimately we view pullbacks like this as golden buying opportunities to own the winners of the AI ​​Revolution as more IT budget dollars are heading into this technology wave with 2/3 sources of AI are already set to benefit.”

RBC Capital Markets: “We’ve done stress tests on our valuation model of what fair value would be for the S&P 500 in 2025 without Fed cuts baked in or with hikes added.

We updated the stress tests to reflect the new outlook of our Rates Strategy team without cutting in January. This continues to suggest that further P/E expansion is unlikely in 2025 and the S&P 500 could end the year around 6,200, the most conservative of the 5 models we used to get our 6,600 YE 2025 target in the price of the S&P 500.”

Bank of America: “All eyes will be on PPI and CPI this week as the market’s focus shifts from growth to inflation. While hotter prints can put more pressure on equities, we believe the burst in NFP increases how much inflation equities can withstand, especially after last week’s selloff. Retail sales are also key to confirming economic strength during the holidays. Additionally, 4Q earnings start this week, which we believe is important. We expect a 2% beat, an upbeat tone from companies, and a good environment for stock pickers.