On Friday, U.S. stocks experienced significant losses following a stronger-than-expected jobs report that dampened expectations for additional Federal Reserve rate cuts this year.

The Dow Jones Industrial Average dropped 696.75 points (-1.63%) to 41,938.45. The S&P 500 slid 1.54% to 5,827.04, and the Nasdaq Composite fell 1.63% to 19,161.63. These declines erased gains made earlier this year, marking a red start to 2025.

December’s payroll growth of 256,000 surpassed the expected 155,000, while the unemployment rate fell to 4.1% from a projected 4.2%. Treasury yields rose, with the 10-year note reaching its highest level since late 2023, as traders lowered their expectations for March rate cuts. Odds for a rate cut in March fell from 41% to 25%.

Consumer sentiment also pressured markets. The University of Michigan’s index dropped to 73.2, below the estimate of 74, with inflation expectations rising to 3.3% (one-year outlook) and 3.0% (five-year outlook).

Growth and small-cap stocks were hit hardest. Nvidia declined 3%, AMD lost 4.8%, and the Russell 2000 small-cap index dropped 2.2%. Financial strategists expressed concerns over the rapid rise in yields, potentially signaling a market pullback.

The Federal Reserve’s current stance and recent economic data point toward sustained volatility. Upcoming inflation reports and corporate earnings will play a pivotal role in shaping market sentiment.