Wall Street wiped out its entire post-election rally this week as mounting interest-rate fears were stoked by a red-hot labor market, surging inflation expectations and escalating geopolitical tensions ahead of Donald Trump‘s return to the White House.

In a shortened trading week due to Thursday’s funeral for former President Jimmy Carter, market activity reached a fever pitch on Friday.

The U.S. economy boasted an impressive 256,000 nonfarm payrolls in December — a figure that made the consensus economist forecast of 160,000 jobs pale in comparison. This marked the strongest employment growth since March. Additionally, the unemployment rate dropped to 4.1%, beating forecasts of 4.2%.

In simple terms, the U.S. labor market ended 2024 firing on all cylinders. While this robust performance bodes well for consumer spending, it poses a significant challenge for the Federal Reserve, which now faces mounting pressure to keep inflation in check.

Expectations for a new interest rate cut were further pushed down the road to September 2025 in reactions to new economic developments. For stocks, this represented a setback, as indices tumbled across the board.

Earlier in the week, President-elect Trump, in a one-hour speech at Mar-a-Lago, floated provocative ideas, including annexing Canada as a 51st state, imposing stringent tariffs on Mexico and demanding NATO members increase military spending to 5% of GDP.

On Friday, the Biden administration announced new sanctions targeting Russian oil giants Gazprom Neft and Surgutneftegas, shadow fleet vessels and opaque traders. These measures triggered a sharp rise in oil prices, further unsettling markets.

Inflation Fears Surge

Consumer inflation expectations for the next five years reached 3.3% in January 2025, hitting their highest levels since June 2008, according to a University of Michigan survey. Rising inflation anxiety may reflect concerns over the incoming Trump administration’s planned tariff hikes.

Wildfires Impact Insurers

California wildfires destroyed over 10,000 structures, intensifying pressure on property insurers like Allstate Corp. (NYSE:ALL) and Travelers Companies (NYSE:TRV). Economic losses could reach $57 billion, with insurance stocks under market focus.

Rate Hike Panic

The blowout December jobs report forced Bank of America Securities to scrap expectations for further interest-rate cuts. It marks a notable U-turn from a top investment bank. Economist Aditya Bhave floated the risk of rising discussions towards interest rate cuts, should core inflation surges above 3% again.

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