(Jan 9): Stock traders refrained from making big bets, with the market set to close on the eve of Friday’s jobs report. Treasuries rebounded as a solid US$22 billion (RM98.97 billion) sale brought a degree of relief after the recent selloff.

Equities swung between small gains and losses throughout the session, with the S&P 500 reclaiming the 5,900 psychological mark after briefly falling below it. The options market is betting the gauge will move roughly 1.2% in either direction after the upcoming US employment data, according to Citigroup Inc. That would be the biggest implied move on a jobs day since September.

US employers probably tempered their hiring last month to wrap up a year of moderating yet still-healthy job growth that economists expect to carry on in 2025. A survey conducted by 22V Research showed most investors are watching payrolls closer than normal. Only 26% of the respondents think Friday’s data will be “risk-on,” 40% said “risk-off,” and 34% “mixed/negligible.”

“Investors will want to see a return to Goldilocks data, consistent with a cooling labor market to help temper the recent spike in yields and help stocks stabilise,” said Tom Essaye at The Sevens Report.

The latest Federal Reserve minutes didn’t break any significant ground, showing officials adopted a new stance on rate-cutting amid elevated price risks, deciding to move more slowly in the months ahead. Meantime, Fed Governor Christopher Waller said he believes inflation will continue to cool toward the central bank’s 2% target.

The S&P 500 added 0.2%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average rose 0.25%. US stock markets will close Jan 9, in observance of a national day of mourning for former president Jimmy Carter. The bond market will close at 2pm New York time.

The yield on 10-year treasuries declined two basis points to 4.67%. The 20-year yield, a laggard on the US government debt curve since its re-introduction in 2020, briefly topped 5%. The Bloomberg Dollar Spot Index rose 0.4%.

“While further near-term strength in the labor market is likely to keep expectations around 1-2 cuts in 2025 for now, we continue to believe that inflation will continue to slowly trend down while employment stays in balance allowing the Fed to cut rates three times in 2025,” said Chris Senyek at Wolfe Research.

The recent slide in stocks and bonds could worsen as traders fret over the prospect of higher inflation and interest rates, but the decline is unlikely to reach the extremes seen in 2022 when markets weathered their worst year since the global financial crisis, according to Morgan Stanley’s Mike Wilson.

The bank’s chief US equity strategist expects a choppy first half of 2025 and an improved second part of the year, he said during an interview with Bloomberg Television on Wednesday. The difference between now and then is that the Fed in 2022 was aggressively raising interest rates at a pace that is unlikely going to be repeated in the foreseeable future.

There is not as much downside for rates today “but that doesn’t mean there couldn’t be 10% downside for many stocks if rates stay at this level,” Wilson noted.

“Equity/bond yield correlations have turned negative again,” Goldman Sachs Group Inc strategists including Christian Mueller-Glissmann wrote in a note, stressing that if yields keep going up without good economic data, it will hit equity markets. “With equities having been relatively resilient during the bond selloff, we think near-term correction risk is somewhat elevated in case of negative growth news.”

“Historically, the most common driver of significant losses are recessions,” said Henry Allen at Deutsche Bank AG. “The huge plunges in 2020 and 2008 required an economic contraction, and the bursting of the dot-com bubble also happened amidst a slowdown that ended up in a recession in 2001. But right now, there’s no sign of a slowdown, and if anything, several leading indicators are looking increasingly positive.”

If economic growth stays robust and the Fed doesn’t start pivoting in a hawkish direction, it’s not implausible that elevated valuations continue for some time, Allen noted. However, if signs of a slowdown emerge or rate hikes move back on the table, the historic precedents show that equities are capable of a notable decline, even without a recession, he concluded.

“The start of the new year has been volatile,” said Craig Johnson at Piper Sandler. “Increased sensitivity to rising bond yields and short-term oversold conditions are testing investors’ patience and nerves. Despite the increased caution, we remain optimistic as the major indices’ primary uptrends remain well-intact.”