Wall Street hits record highs as improved unemployment tempers rate-cut expectations

U.S. stocks closed at fresh record highs on Friday after a mixed employment report showed slower hiring but an unexpected improvement in the unemployment rate, reinforcing confidence that the economy remains resilient without forcing the Federal Reserve into immediate action. Gains were broad-based, with strength in technology, energy, and housing stocks offsetting weakness in parts of the auto and consumer sectors.

Market closes at new highs

The S&P 500 rose 0.6%, surpassing its previous all-time high set earlier in the week. The Dow Jones Industrial Average added 237 points, or 0.5%, also reaching a record, while the Nasdaq composite outperformed with a 0.8% gain.

The rally followed the U.S. Labor Department’s December jobs report, which showed employers added fewer jobs than economists had expected. However, the unemployment rate fell and came in better than forecast, underscoring what economists describe as a “low-hire, low-fire” labor market that continues to cool gradually without tipping into contraction.

Investors interpreted the data as reducing the urgency for the Federal Reserve to cut interest rates at its next policy meeting, while still leaving room for easing later in the year if inflation continues to moderate.

Nuclear energy deals lift power stocks

Energy stocks were among the session’s strongest performers, led by Vistra, which surged 10.5% after announcing a 20-year agreement to supply electricity from three nuclear plants to Meta Platforms. The deal highlights a growing trend among large technology companies seeking long-term, carbon-free power sources to support data centers used for artificial intelligence and cloud computing.

Shares of Oklo rose 7.9% after the nuclear startup said it had also reached an agreement with Meta that will help it secure nuclear fuel and advance plans for a facility in Pike County, Ohio. Similar agreements across the sector have fueled investor interest in nuclear energy as demand for reliable power continues to grow.

Housing stocks rally on mortgage-rate proposal

Housing-related stocks also posted strong gains following comments from President Donald Trump outlining a proposal aimed at lowering mortgage rates. Late Thursday, Trump called for the purchase of $200 billion in mortgage-backed bonds, echoing past Federal Reserve interventions designed to reduce borrowing costs.

Builders FirstSource climbed 12%, making it one of the biggest gainers in the S&P 500. Among major homebuilders, Lennar rose 8.9%, D.R. Horton gained 7.8%, and PulteGroup advanced 7.3%.

The sector has been sensitive to interest-rate expectations, with lower mortgage rates seen as a potential catalyst for increased home sales and construction activity after a prolonged slowdown.

Automakers and consumer names weigh on gains

Not all sectors participated in the rally. General Motors shares fell 2.7% after the automaker said it expects to take a $6 billion charge related to its pullback from electric vehicle production during the final quarter of 2025. The charge follows $1.6 billion in costs recorded in the previous quarter.

GM cited reduced tax incentives and looser fuel-emissions regulations as factors weighing on EV demand. The company’s update highlighted broader uncertainty facing automakers as governments recalibrate climate and industrial policies.

Consumer products maker WD-40 declined 6.6% after reporting quarterly profit that fell short of analysts’ expectations. Chief Financial Officer Sara Hyzer attributed the weakness primarily to timing-related factors rather than reduced demand, and the company maintained its financial outlook for the year ahead.

Bond yields mixed as rate expectations shift

In the bond market, Treasury yields were mixed as traders reassessed the path of U.S. monetary policy. According to CME Group data, expectations for an interest-rate cut at the Fed’s upcoming meeting later this month fell sharply, with traders pricing in roughly a 5% chance, down from 11% a day earlier.

Despite that shift, markets continue to expect at least two rate cuts over the course of the year, reflecting confidence that inflation will continue to ease toward the Fed’s 2% target.

The yield on the benchmark 10-year Treasury note slipped to 4.16% from 4.19% late Thursday, while the two-year yield, which is more sensitive to near-term rate expectations, rose to 3.53% from 3.49%.

Inflation expectations show signs of easing

Additional economic data released Friday offered support for the view that inflation pressures may be softening. A preliminary survey from the University of Michigan showed improving consumer sentiment, particularly among lower-income households.

The report also indicated that expectations for inflation over the next 12 months have fallen to their lowest level in about a year, a development that could give the Federal Reserve more flexibility to ease policy later in 2026 if the trend holds.

“Until the data provide a clearer direction, a divided Fed is likely to stay that way,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said in a note. “Lower rates are likely coming this year, but the markets may have to be patient.”

Market leadership broadens beyond Big Tech

Recent gains have extended beyond the large technology and artificial intelligence stocks that dominated market performance in recent years. Smaller companies have begun to outperform as optimism grows around a so-called soft landing for the economy.

The Russell 2000 index of smaller stocks rose 4.6% for the week, significantly outpacing the S&P 500’s 1.6% gain over the same period, suggesting investors are increasingly willing to take on risk outside the largest firms.

Global markets also advance

Stock markets abroad posted gains across much of Europe and Asia, reflecting the positive tone in U.S. trading. France’s CAC 40 rose 1.4%, while Japan’s Nikkei 225 climbed 1.6%, among the strongest performances in major international indexes.

Market close summary

The S&P 500 gained 44.82 points to close at 6,966.28.
The Dow Jones Industrial Average rose 237.96 points to 49,504.07.
The Nasdaq composite added 191.33 points to finish at 23,671.35.