Market Reactions to Upbeat Economic Data
On Tuesday, U.S. stocks experienced a significant decline after a batch of upbeat economic data raised concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.
Job Openings Increase Unexpectedly in November
According to the Labor Department report, job openings unexpectedly increased in November, which has sparked concerns about potential inflationary pressures. This unexpected increase has led markets to reassess their expectations on when the central bank can deliver its first interest rate reduction this year.
Services Sector Activity Accelerates in December
A separate report revealed that services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high. This increase in input prices is a significant concern for markets, as it may lead to higher inflation rates and, subsequently, slower economic growth.
Market Analysts Weigh In on the Situation
Markets are starting to recognize that they thought they were in the eighth inning of the inflation fight but now it’s going to be higher for longer,’ said Joe Mazzola, head of trading and derivatives strategist at Charles Schwab. This statement highlights the changing market dynamics and the potential impact of inflationary pressures on interest rates.
Benchmark 10-year Treasury yields hit 4.699% after the data pointed to a strong economy, the highest since April 26. This significant increase in yields is a direct result of the economic data released, which has weighed heavily on stocks.
Potential Impact of Inflationary Pressures on Interest Rates
Both of those things potentially have inflationary impacts and, as a result, yields have increased,’ said Mike Dickson, head of research at Horizon Investments. This increase in yields is a significant concern for markets, as it may lead to higher interest rates and slower economic growth.
Central Bank Expectations Shifted
Signs of continued resilience in the economy have pushed back expectations on when the central bank can deliver its first interest rate reduction this year. Traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025, according to the CME Group’s FedWatch tool.
Concerns Over Tariffs
Concerns over the impact of possible tariffs by the incoming Trump administration on consumer prices have also been on investors’ minds. A mix of solid growth and a new wave of inflationary pressure from tariffs means the Fed will likely switch from cutting interest rates at every decision … to pausing in between rate cuts in 2025,’ Bill Adams, chief economist for Comerica Bank, said in a note.
Market Performance
The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36, the S&P 500 lost 66.35 points, or 1.11%, to 5,909.03 and the Nasdaq Composite lost 375.30 points, or 1.89%, to 19,489.68.
Higher yields pushed technology-sector stocks lower by 2.39%. Shares of AI bellwether Nvidia fell 6.22%.
Sector Performance
Most of the 11 S&P 500 sectors declined, except for healthcare and energy stocks.
Focus on Key Economic Indicators
The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed’s December meeting.
Previous Session’s Market Activity
In the previous session, the S&P 500 and the Nasdaq closed short of one-week highs on uncertainty after President-elect Donald Trump denied a report that his team was exploring less aggressive tariff policies.
Company-Specific News
Tesla shares fell 4% after BofA Global Research downgraded the stock to ‘neutral’ from ‘buy.’ Micron Technology rose 2.67% after Nvidia boss Jensen Huang said the chipmaker was providing memory for the AI bellwether’s GeForce RTX 50 Blackwell family of gaming chips.
Citigroup rose 1.29% on bullish coverage from Truist Securities, while Bank of America went up 1.5% after positive ratings from at least three brokerages. Some big banks are expected to report quarterly earnings in the next week.
Market Volume
Declining issues outnumbered advancers by a 2.14-to-1 ratio on both the NYSE and the Nasdaq. The S&P 500 posted 9 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 60 new highs and 58 new lows.
Volume on U.S. exchanges was 20.45 billion shares, compared with the 12.52 billion average for the full session over the last 20 trading days.
Market Closure
Markets will be closed on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.
Reporting and Editing Credits
Reporting by Carolina Mandl in New York, Additional reporting by Johann M Cherian and Sukriti Gupta in Bengaluru. Editing by Maju Samuel and Matthew Lewis.
