Opening at the peak! Wall Street hotly discusses: Why did the US stocks, despite strong non-farm payrolls, end on a weak note?

U.S. stock volatility returned to Wall Street during Wednesday’s trading session, and this time, an unexpectedly strong January employment report played a central role amid the turbulence.

After the opening bell on Wednesday, the Dow initially gapped higher, approaching the previous day’s intraday record high of 50,512 points. The January employment report released before the market opened showed that the U.S. economy added more jobs last month than economists had expected.

However, this blue-chip index quickly turned downward afterward, fluctuating between gains and losses throughout the day, ultimately ending its four-day winning streak with a decline. The S&P 500 and Nasdaq also exhibited a “head and tail” pattern of opening high and closing lower.

Many industry insiders pointed out that statements earlier this week from White House officials, including Kevin Hassett, led some investors to believe that the non-farm payroll data might disappoint. Other recent data indicators also did not fully depict an optimistic outlook for U.S. consumers and the labor market.

“Regarding Wednesday’s employment figures, this (prior data) was an unsettling prelude,” said George Catrambone, head of fixed income at DWS Americas. He was referring to December’s “zero growth” retail sales data, a poor January Challenger layoffs report, and other signs of a sluggish labor market.

But when the non-farm payroll data was finally released—showing that the economy added 130,000 jobs in January, well above Wall Street expectations, and the unemployment rate fell from 4.4% in December to 4.3%—the market clearly experienced an immediate “surprise and delight.”

“I would say this is definitely an upside surprise,” Catrambone said regarding the initial bond market reaction.

However, as investors gradually digested other details of Wednesday’s labor data, some concerning signals remained evident—for example, revised data showed only 181,000 new jobs added in 2025, a drop of over 2 million from the previous years’ averages—this surprise gradually faded during the subsequent U.S. stock trading hours.

Catrambone from DWS warned investors not to overinterpret a single employment report, noting that the overall U.S. economy still exhibits a “rigid” pattern of low hiring and low layoffs.

Rate cut expectations were dashed

So why did the stock market experience such a sharp reversal? Some market strategists believe that the strong labor market data in January could complicate inflation outlooks and rate cut expectations.

Michael O’Rourke, chief market strategist at JonesTrading, said: “The January employment report was strong—especially considering that the Trump administration had already lowered expectations before the data was released. Therefore, the result is that the market expects the Federal Reserve to delay rate cuts in the foreseeable future. The U.S. Treasury market responded reasonably with a sell-off, but the initial optimistic reaction in the S&P 500 was unwarranted, ultimately triggering a sell-off.”

According to FactSet data, the CBOE Volatility Index (VIX) on Wall Street surged significantly on Wednesday, rising from around 17 points earlier this week to as high as 18.9 points.

Carson Group chief market strategist Ryan Detrick noted, “The instinctive reaction to good employment data is to go up first and then down. But many people gradually realized that the strong labor market has undermined rate cut expectations.”

According to the CME FedWatch tool, influenced by the employment data, futures traders increased the probability that the Federal Reserve will keep interest rates unchanged through June—raising the chance of no rate hike in June from 24.8% to 42.4%. The term of Fed Chair Powell ends in May.

Longbow Asset Management CEO Jake Dollarhide said, “We’ve seen huge fluctuations in key data.” He added, “The market and investors are generally confused. As for rate cuts, a March cut is now almost impossible.”

Given the ongoing uncertainty about interest rate prospects, volatility in the bond market is likely to spill over into stocks again.

“The market is full of unknowns,” said Ryan Jacobs, founder of Jacobs Investment Management in Florida, highlighting especially the uncertainty around the timing of the Fed’s next rate cut.

Currently, some Wall Street investment banks that previously predicted a rate cut in March have abandoned that forecast. CIBC Capital Markets now expects two rate cuts this year, in June and July, instead of the earlier predictions of March and June. TD Securities economists have pushed back their next rate cut forecast from March to June.

Gennadiy Goldberg, head of U.S. rate strategy at TD Securities, said, “Data indicates that the Fed still has no urgent need to cut rates in the short term.” However, he added, “The market will still find it difficult to completely rule out a rate cut this year because we believe strong data means a delay rather than an outright absence of rate cuts this year.”

Goldberg expects the 10-year U.S. Treasury yield to stay within the 4.10%-4.30% range, roughly unchanged since December last year.

(Article source: Cailian Press)