Category: Economy

By Johann M Cherian, Sukriti Gupta, and Carolina Mandl (Reuters)

The U.S. stock market took a hit on Tuesday after a batch of positive economic data raised concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.

Markets React to Upbeat Economic Data

The Labor Department report showed job openings unexpectedly increased in November, while a separate report said services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high. This data has sparked concerns that the inflation rebound could lead to higher interest rates.

Inflation Concerns Weigh on Stocks

"Markets are starting to recognize that they thought we 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. The benchmark 10-year Treasury yields hit 4.699% after the data pointed to a strong economy, the highest since April 26.

Impact 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. "That’s definitely weighing on stocks." The FedWatch tool from the CME Group indicates that traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025.

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," said Bill Adams, chief economist for Comerica Bank.

Stock Market Performance

The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36, while the S&P 500 lost 66.35 points, or 1.11%, to 5,909.03. The Nasdaq Composite lost 375.30 points, or 1.89%, to 19,489.68.

Sectors Affected

Higher yields pushed technology-sector stocks lower by 2.39%. Shares of AI bellwether Nvidia fell 6.22%. Most of the 11 S&P 500 sectors declined, except for healthcare and energy stocks.

Focus on Key Data Releases

The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed’s December meeting. 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.

Other Market 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.

Trading Activity

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 and Trading Activity

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 Holiday

Markets will be closed on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.

(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)

Market Impact Analysis

The recent batch of economic data has sparked concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.

Key Takeaways:

• Upbeat economic data raised concerns that an inflation rebound could slow down the Fed’s pace of monetary policy easing.
• The Labor Department report showed job openings unexpectedly increased in November, while a separate report said services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high.
• Higher yields pushed technology-sector stocks lower by 2.39%, and shares of AI bellwether Nvidia fell 6.22%.
• The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed’s December meeting.

Market Expectations

The FedWatch tool from the CME Group indicates that traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025.

Key Points:

• Traders now see the next cut more likely in June.
• The Fed is expected to stay on hold for the rest of 2025.
• The upcoming non-farm payrolls data and minutes from the Fed’s December meeting will be closely watched by investors.

Investor Sentiment

The recent market performance has been influenced by investor concerns over inflation and interest rates.

Key Factors:

• Inflation concerns have led to higher yields, which has negatively impacted technology-sector stocks.
• The upcoming data releases will play a crucial role in shaping investor sentiment.

Market Outlook

The current market environment is characterized by uncertainty surrounding inflation and interest rates.

Key Considerations:

• The Fed’s monetary policy decisions will continue to influence the market.
• Investor sentiment will be closely watched as the market navigates through this uncertain period.

Conclusion

The recent batch of economic data has sparked concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.

NEW YORK — Amid growing consensus that the Federal Reserve may maintain elevated interest rates for longer than previously expected, asset managers are re-evaluating traditional portfolio structures. GF Star Group, a Texas-based financial advisory firm serving institutional and high-net-worth clients, has released new strategic guidance increasing its recommended exposure to alternative assets.

In a mid-quarter update sent to clients this week, the firm noted that the persistence of inflationary pressures and recent Fed communications suggest the era of near-zero rates is unlikely to return soon. This environment, according to GF Star Group, diminishes the defensive utility of traditional fixed income instruments and calls for a broader toolkit of income-generating and inflation-resistant strategies.

“Investors need to rethink duration risk,” said the firm’s Chief Portfolio Strategist in the report. “If the cost of capital remains structurally higher, traditional bond-heavy portfolios will underperform, both on a real return basis and in liquidity terms.”

Alternatives to Play a Central Role

The firm’s updated allocation framework calls for a notable increase in exposure to private credit, infrastructure equity, and real asset–linked funds, particularly for clients seeking mid- to long-term stability in volatile macro cycles.

According to GF Star Group’s client data, institutional portfolios with over $50 million in AUM have already begun shifting capital into non-public asset classes, with private credit emerging as the most favored vehicle in the current environment. Customized structures, including short-duration direct lending and floating-rate credit, are being used to mitigate rate sensitivity.

“Private markets are no longer peripheral—they’re essential in the current macro regime,” the report stated. “The liquidity trade-off is justified by higher yield potential and better alignment with long-term liabilities.”

Inflation Hedging Beyond Commodities

While some investors have turned to gold and energy commodities as inflation hedges, GF Star Group argues that strategic exposure to infrastructure and real estate with contractual cash flows provides more durable protection.

The firm highlighted sectors such as renewable utilities, digital infrastructure (data centers and fiber), and logistics real estate as areas with inflation-linked pricing power and sustained demand growth.

“Inflation protection doesn’t have to mean volatility. Infrastructure equity can offer both defensive yield and capital resilience,” the report noted.

Implications for Private Clients

For high-net-worth individuals, GF Star Group is recommending rebalancing strategies that reduce duration-heavy bond holdings in favor of diversified alternatives with controlled liquidity windows.

A newly launched client segment model includes optional allocations to secondary private equity, income-producing REITs, and multi-asset hedge strategies designed to navigate prolonged policy tightening.

“This isn’t about chasing alpha—it’s about insulating portfolios from the structural erosion of real returns,” the firm emphasized.

As market participants brace for a longer cycle of tighter financial conditions, GF Star Group’s latest strategy underscores a broader shift underway across asset management: in a world of sustained high rates, alternative assets are becoming the new core.