Stocks dropped on Friday after a hot jobs report dampened Wall Street's expectations for more interest rate cuts from the Federal Reserve this year.

The Dow Jones Industrial Average lost 696.75 points, or 1.63%, to close at 41,938.45. The S&P 500 slid 1.54% to 5,827.04, while the Nasdaq Composite fell 1.63% to 19,161.63. Friday's losses pushed the major benchmarks into the red for 2025.

U.S. payrolls grew by 256,000 in December, while economists polled by Dow Jones expected to see an increase of 155,000. The unemployment rate, which was projected to remain at 4.2%, fell to 4.1% during the month. The yield on the 10-year Treasury note spiked to its highest level since late 2023 after the report.

"Good news for the economy but not for the markets, at least for now," said Wells Fargo Investment Institute senior global market strategist Scott Wren. "However, this unexpected gain relative to the consensus projection does not change our view that the labor market is likely to decelerate further in coming quarters."

Traders give 97% odds that the Fed stands pat on rates at its meeting later in January, and they now think the central bank will hold rates where they are in the March meeting as well, based on fed funds futures trading.

Odds of a March cut fell to around 25% following the jobs data, down from a 41% probability a day earlier, according to the CME FedWatch Tool. The Fed cut its benchmark rate by a quarter point in December.

Stocks took another leg lower on Friday after the University of Michigan's consumer sentiment index signaled concern on the inflation front. The overall index came in at 73.2 for January, missing a Dow Jones estimate of 74. Part of that was driven by one-year inflation expectations rising to 3.3% from 2.8%. Five-year expectations also scaled to their highest level since June 2008.

Growth stocks that could be hurt the most if a spike in rates causes investors to get more conservative led the session's losses. Chipmaker Nvidia shed 3%, while AMD and Broadcom lost 4.8% and 2.2%, respectively. Palantir was off by more than 1%.

Small-cap stocks, also sensitive to borrowing rates, dropped with the Russell 2000 index losing more than 2%.

"Rates are moving a little bit too much, too fast and equity markets are selling off," LPL Financial chief technical strategist Adam Turnquist said, adding that the recent move in yields foreshadows a potential pullback or correction for the S&P 500.

"But the important thing that gets lost on days like today is the message of why rates are moving higher — it's because the economy is doing better than expected," he said. "Ultimately, that means the potential for better earnings, less risk of a recession, and that's really going to dictate longer term returns versus a sell-off in today's market."

All three of the major averages posted back-to-back weekly losses, with the S&P 500 off 1.9% and the Nasdaq Composite down 2.3%. The 30-stock Dow slid nearly 1.9% on the week.

Major U.S. indexes end Friday lower

Stocks fell on Friday, putting the three major indexes in the red for the week.

The S&P 500 shed 1.54% to close at 5,827.04. The Nasdaq Composite lost 1.63% to end the session at 19,161.63. The Dow Jones Industrial Average lost 696.75 points, or 1.63%, to close at 41,938.45.

— Pia Singh

Market's reaction to jobs report might mean no more rate cuts in 2025, Jeremy Siegel says

The market's response to the strong nonfarm payrolls reading for December could signal bad news for more interest rate cuts from the Federal Reserve this year, according to Jeremy Siegel.

"The market is saying maybe no rate cuts in 2025 and that the 10-year [Treasury yield] could very easily break well above 5%," the professor emeritus of finance at University of Pennsylvania's Wharton School said on CNBC's "Closing Bell" on Friday.

"I really see that virtually every cut has really been wiped out, and looking at history, I was saying that that is actually a formula for higher long-term rates," he added.

— Sean Conlon

Meta is favorite tech play among investors so far this year

Meta outshone the rest of its 'Magnificent 7' peers this week as the broader market sell-off hits major tech and growth plays.

The Facebook parent, which earlier this week announced it will eliminate its third-party fact-checking program and implement a "Community Notes" model, has seen its shares jump 3.3% this week and more than 6.5% this month.

Alphabet is the only other Big Tech stock that's made a marginal gain this week, gaining about 1.1%.

Other tech plays haven't been on a hot streak, meanwhile. Apple is down 2.8% this week and roughly 5.5% this month, while Tesla and Netflix have each sold off more than 3.5% this week. Nvidia's down 6% week-to-date, clawing away its roughly 1% gain this month. Amazon and Microsoft have shed 1.1% and 0.6% this week, respectively.

These losses come as investors warn high levels of concentration, and uncertainty about AI adoption, in the broader market dominated by Big Tech.

— Pia Singh

Crude prices close at highest level since October after U.S. imposes Russia oil sanctions

Oil prices jumped on Friday after the U.S. Treasury Department announced sweeping sanctions against Russia's oil industry.

Brent gained $2.84, or 3.69%, to close at $79.76 per barrel, while U.S. crude oil advanced $2.65, or 3.58%, to settle at $76.57 per barrel. The benchmarks closed at their highest levels since Oct. 7.

The sanctions target Russian oil companies Gazprom Neft and Surgutneftegas and their subsidiaries, more than 180 tankers, and more than a dozen Russian energy officials and executives. The sanctioned executives include Gazprom Neft CEO Aleksandr Valeryevich Dyukov.

— Spencer Kimball

Insurers slide on fallout from Los Angeles wildfires

Insurance companies were among the market's biggest losers on Friday as the devastation caused by the uncontained Los Angeles wildfires spread.

Allstate lost 6.1%, while American International Group and Chubb each slid 1.3% and 3.6%, respectively. Travelers Companies traded 4.1% lower.

JPMorgan noted that AllState, Chubb and Travelers are the most exposed carriers to insured losses in the wildfires, and said Chubb could have a particularly high exposure given its high net worth focus in the region.

Private market homeowner and commercial property insurers could face the biggest declines, according to Moody's Ratings.

"We expect insured losses to run well into the billions of dollars, given the high value of homes and businesses in the affected areas, and to cause large losses for P&C insurers with significant homeowners and commercial property market share in Los Angeles," the firm said in a note.

— Pia Singh, Yun Li

Walgreens shares pop more than 25% on better-than-expected quarterly report

Walgreens Boots Alliance shares soared nearly 28% on Friday after the company posted fiscal first-quarter earnings and revenue that beat analysts' expectations.

The company still reported a net loss of $265 million, or 31 cents per share, for the fiscal first quarter, significantly higher than the net loss of $67 million, or 8 cents per share, it posted for the year-earlier period. The retail pharmacy chain owes the loss to higher operating losses, which is driving its multiyear plan to cut costs and close stores that are underperforming.

For more, read here.

— Pia Singh, Annika Kim Constantino

Fed's rate cut pause will support the dollar this year, says Jens Nordvig

The dollar will likely remain strong relative to its peers as traders forecast little to no rate cuts from the Federal Reserve in the first half of the year, according to Jens Nordvig, founder and CEO of Exante Data.

The first rate cut from the central bank this year is expected to come in June, but the odds currently remain at just 42.7%, according to Fed funds futures pricing data.

"The big picture is that US growth is resilient, the Fed is about to be on hold. … That's going to support the dollar," Nordvig told CNBC's "Squawk on the Street" on Friday.

With the Fed appearing to maintain rates in the coming months, a widening rate differential as other countries lower their interest rates will continue to support the dollar.

"It's hard to see what's going to be the catalyst for reversal," Nordvig said.

— Hakyung Kim

Decliners lead advancers 5-1 at NYSE

About five stocks declined for every advancer at the New York Stock Exchange on Friday, as the market sold off on dimmed expectations for future Fed rate cuts.

Overall, nearly 2,200 NYSE-listed names were down, while less than 500 traded higher, FactSet data shows.

— Fred Imbert

Stocks making the biggest moves midday Friday

Check out the companies making headlines in midday trading:

• Delta Air Lines — Shares of the airline surged 9% on better-than-expected results for the fourth quarter. Delta posted adjusted earnings of $1.85 per share on $14.44 billion of revenue. That surpassed the LSEG forecast of $1.75 per share and $14.18 billion in revenue. The company also offered up strong guidance.
• Constellation Energy — The stock popped 24% after the company announced it would buy geothermal and natural gas company Calpine in a $26.6 billion deal. Constellation also guided its full-year adjusted earnings per share to above where analysts anticipated.
• Allstate, Chubb — Insurers exposed to the California homeowners' market sold off sharply Friday as the devastation caused by the Los Angeles wildfires spread. Shares of Allstate and Chubb declined 7.8% and 4.9%, respectively. AIG shed 1.5%, and Travelers fell about 5%. AllState, Chubb and Travelers are the most exposed carriers to insured losses in the wildfires, according to JPMorgan.

The full list can be found here.

— Hakyung Kim

Health care and social assistance takes top spot in job gains for December

December's stronger-than-expected jobs report showed gains across the U.S. economy, with health care and social assistance leading the charge in employment growth for a third straight month. Here were the top three areas last month:

• Health care and social assistance: 69,500 jobs
• Retail trade: 43,400 jobs
• Leisure and hospitality: 43,000 jobs

Read here for a full chart of job growth by category.

— Sean Conlon

Constellation plunges after earnings miss expectations

Constellation Brands shares headed for their worst day in nearly half a decade after earnings disappointed Wall Street.

The alcohol maker dropped more than 14%, on track for its biggest one-day loss since shares tumbled more than 15% in March 2020. Constellation was the worst performer in the S&P 500 as of late morning trading.

Constellation earned $3.25 per share, excluding items, on $2.46 billion in revenue for the fiscal third quarter. Analysts polled by FactSet forecast $3.31 per share and $2.53 billion in revenue.

— Alex Harring

Russell 2000 slides

Small-cap stocks also took a hit on Friday, pulling the Russell 2000 into correction territory.

The small cap-focused index fell around 1.8% in the session, hurt by rising Treasury yields. The Russell 2000 has now entered correction territory, which is when an average falls 10% from a recent high.

With Friday's drop, the index is now down 1.4% compared with the start of the 2025 trading year.

— Alex Harring

Fed's Goolsbee not deterred on outlook for interest rate cuts

Despite a much stronger-than-expected jobs report for December and rising consumer fears about inflation, Chicago Federal Reserve President Austan Goolsbee still sees lower interest rates ahead.

"If conditions are stable and we don't have an uptick in the inflation rate, and we keep having [inflation readings] come in around 2% with stable and full employment, I think that the rates should go down to what I consider to be neutral," Goolsbee said Friday on CNBC's "Squawk on the Street." "So 12 to 18 months from now, they will be a fair bit lower than they are today."

His comments came the same day that the Bureau of Labor Statistics reported nonfarm payrolls growth of 256,000 in December, and respondents to a University of Michigan survey raised their long-term inflation outlook to the highest level since mid-2008.

Goolsbee, who is a voter this year on the rate-setting Federal Open Market Committee, countered that there are few signs the economy is overheating and noted that inflation over the past six months has been around 1.9%, or just below the Fed's target.

— Jeff Cox

Inflation outlook soars in latest University of Michigan survey

Consumers grew far more worried about inflation to start the year, with the five-year outlook hitting its highest level in more than 16 years.

The University of Michigan's preliminary consumer survey showed a sentiment reading at 73.2, slightly lower than December and below the Dow Jones consensus estimate of 74.

However, the inflation readings showed heightened fears.

At the one-year horizon, the outlook rose half a percentage point to 3.3%, tied for the highest level since November 2023. On the five-year outlook, worries were even more pronounced—it also jumped to 3.3%, the highest since June 2008.

— Jeff Cox

Major averages open in the red on Friday

The three U.S. indexes opened Friday's trading session deep in the red.

Shortly after 9:30 a.m. ET, the S&P 500 was 0.7% lower, while the tech-heavy Nasdaq Composite was down by about 1%. The Dow Jones Industrial Average opened 324 points, or 0.8%, lower.

— Pia Singh

U.S. jobs report comes in much hotter than expected

The U.S. economy added many more jobs than anticipated last month, raising concern over whether the Fed can lower rates as much as investors hope.

The Labor Department said U.S. payrolls grew by 256,000 jobs in December. Economists polled by Dow Jones expected an addition of 155,000 jobs.

The unemployment rate fell to 4.1%.

— Fred Imbert

See the stocks moving before the bell

These are some of the stocks moving before the bell on Friday:

• Delta Air Lines — The carrier's shares popped 6% after the company posted strong earnings and solid guidance in the fourth quarter.
• Walgreens Boots Alliance — The pharmacy stock surged 11% on better-than-expected earnings results in the fiscal first quarter.
• Wayfair — Shares popped 5% after the retailer said it was leaving the German market and cutting around 3% of its global workforce.

See the full list here.

— Alex Harring

Citi downgrades Hims & Hers on overvalued GLP-1 revenue stream

Citi sees shares of Hims & Hers slipping in the future as the GLP-1 revenue stream grows more constrained.

The bank downgraded shares of the telehealth company to a sell rating from neutral. However, the firm lifted its target price to $25 from $24, implying an approximate 3% decline from the stock's Thursday closing price of $25.73.

Shares of Hims & Hers have added 6% in 2025 following a stunning 172% surge last year.

Citi analyst Daniel Grosslight wrote that the market is overvaluing the company's GLP-1 revenue stream, especially as semaglutide is likely to follow tirzepatide's removal off the FDA's shortage list.

"If this were to happen, HIMS weight loss market would be significantly constrained as they would only be able to compound GLP-1s by changing the formulation for the specific clinical benefit of an individual," the analyst said. "As such, our GLP-1 revenue falls from $400M in FY25 to $135M."

Grosslight added that the company still has a smart personalization strategy, which is enough to offset some of these headwinds.

— Lisa Kailai Han

Morgan Stanley upgrades Gilead Sciences to overweight, sees 27% potential upside

A key catalyst for Gilead Sciences comes as the company makes progress with its next-generation HIV treatment strategy, according to Morgan Stanley.

The bank upgraded the pharmaceuticals stock to an overweight rating from equal weight. Analyst Terence Flynn accompanied the move with a hike of his $87 price target to $113.

Shares of Gilead Sciences are trading nearly 4% lower on the year after rising 14% in 2024. Flynn's updated price forecast is approximately 27% higher than where shares closed Thursday.

"We acknowledge the stock is trading off the lows following positive pipeline developments for Lenacapavir in HIV prevention and anito-cel in multiple myeloma, but we see the potential for upward estimate revisions and further multiple expansion," Flynn wrote.

The analyst added that risks for Gilead Sciences could be posed by any potential policy changes to the Medicaid budget that might affect HIV therapies.

— Lisa Kailai Han

Delta earnings beat estimates, shares rise

Delta Air Lines shares were up more than 2% in the premarket after the airline reported better-than-expected fourth-quarter results.

The company earned $1.85 per share, excluding items, on $14.44 billion in revenue. Analysts polled by LSEG expected a profit of $1.75 per share on revenue of $14.18 billion.

— Fred Imbert

What to expect in Friday’s jobs report

All eyes are on the nonfarm payrolls report for December, due Friday morning.

The data has taken on a new sense of importance as the Federal Reserve's path on this year's rate cuts has grown uncertain. Fed funds futures trading suggests a high likelihood that central bank policymakers will stand pat on rates at their meeting later this month.

Economists polled by Dow Jones expect that payrolls grew by 155,000 last month, cooler when compared to November's gain of 227,000. They see the unemployment rate holding steady at 4.2%.

Economists also forecast average hourly wages to have grown 0.3% on a monthly basis and to have risen 4% from 12 months earlier.

Read more from CNBC's Jeff Cox on what is expected in the new report.

— Darla Mercado

Stock futures open in the red

U.S. stock futures fell on Thursday night.

S&P 500 futures and Nasdaq 100 futures each dropped 0.3%, while futures tied to the Dow Jones Industrial Average shed 0.2%.

— Sean Conlon