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.
