Stocks fell and bond yields rose after the latest economic data spurred bets the Federal Reserve won’t cut interest rates again before July amid inflation pressures.
Equities quickly wiped out gains after a report showed growth at US service providers quickened in December, with a price measure hitting the highest since early 2023. The market also got hit amid a selloff in its most-influential group — technology. Nvidia Corp. sank 5% after a surge that drove the chipmaker to all-time highs. Treasuries dropped across the curve, with 10-year yields climbing toward the highest since April.
Trump Says Interest Rates Are Far Too High
“Rising yields are not necessarily an issue for stocks unless, of course, the economy starts to fail. Then all bets are off,” said Kenny Polcari at SlateStone Wealth. “But rising yields will be an issue if inflation rears its ugly head.”
To Mark Streiber at FHN Financial, the latest ISM services report supports the Fed’s recent communication that rate cuts would likely slow in 2025 due to upside inflation risks. Next week’s data will provide more concrete details for price trends in December, but until then inflation and incoming-policy anticipation will likely dominate trading, he said.
“The Fed will likely switch from cutting interest rates at every decision, as they did between September and December, to pausing in between rate cuts in 2025,” said Bill Adams at Comerica Bank.
Separate data Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services — while other industries showed more mixed demand for workers.
The S&P 500 fell 0.7%. The Nasdaq 100 slid 1.3%. The Dow Jones Industrial Average was little changed. A gauge of the “Magnificent Seven” megacaps sank 2.1%. The Russell 2000 index of smaller firms dropped 0.8%.
The yield on 10-year Treasuries climbed six basis points to 4.68%. The market also came under pressure amid a raft of investment-grade deals and a $39 billion US sale of 10-year debt. In the UK, 30-year yields hit the highest since 1998, raising the prospect of tax increases to meet fiscal rules.
Traders who as recently as late September were fully pricing in another Fed rate cut by March scrapped wagers there will be one until the second half of the year.
