NEW YORK — Following positive reports concerning the job market and business activities, Wall Street experienced a downturn on Tuesday, with the stock market showing signs of a slump.
The S&P 500 index dropped by 1.1%, reversing an earlier gain, while the Dow Jones Industrial Average saw a decline of 178 points or 0.4%. The Nasdaq composite fared even worse, plunging 1.9%.
Rising bond market yields played a significant role in this decline, climbing sharply right after the release of the upbeat economic reports. One report noted an increase in job openings advertised by U.S. employers in late November, surpassing economists’ expectations. Another indicated stronger growth in services—including finance and retail—than many had anticipated for December.
While these strong reports signal good news for job seekers and alleviate concerns regarding an impending recession, they also imply sustained inflationary pressures. Such a robust economy may result in the Federal Reserve being less inclined to make beloved interest rate cuts.
The Federal Reserve commenced interest rate cuts in September to support the economy but has hinted at a potential slowdown in this strategy. Additionally, the prospect of tariffs under President-elect Donald Trump has incited concerns about increased inflation, which has remained just above the Fed’s target of 2%.
An analysis from the Institute for Supply Management disclosed unfavorable inflation trends in the services sector, reporting an acceleration in price increases for December.
Amid rising expectations of fewer interest rate cuts for 2025, long-term Treasury yields surged. Concerns regarding potential Trump administration policies, like tax cuts that might increase U.S. government debt, have also contributed to this rise.
Higher Treasury yields attract investors, making bonds more appealing compared to stocks, which leads to a downward effect on stock prices. The yield on a 10-year Treasury bond rose to 4.69% from 4.63% just before the reports were released and significantly increased from 4.15% in early December.
Elevated yields tend to pressure pricier stocks, particularly in the technology sector, prominently affecting companies like Nvidia, which recently benefitted from a surge of interest in artificial intelligence advancements.
Nvidia was initially on track to reach another all-time high following CEO Jensen Huang’s announcement of new products and partnerships. He positioned AI technology as a significant growth opportunity, particularly in robotics.
However, post-report sentiments shifted, causing Nvidia shares to slump by 6.2%. This drop made it the largest decliner within the S&P 500 index, with prominent losses also recorded by Amazon, Tesla, Apple, and Microsoft significantly contributing to the index’s declining fortunes.
Bank of America’s strategists indicated a potential shift towards a “good news is bad news” mindset in the market, following a summer filled with economic slowdown concerns. As the 10-year Treasury yield firmly surpasses 4.50%, attention now turns to the forthcoming update on the U.S. employment situation.
Economists project a slowdown in job growth, estimating around 156,500 new positions added in December. The ideal figures for the stock market, which would balance strength and caution, would fall between 125,000 and 175,000 jobs, alongside an unemployment rate of 4.2%, based on Bank of America’s analysis.
On a brighter note, Cintas boosted stock index performance slightly, rising 2% following its announcement of an acquisition offer for UniFirst at $275 per share in cash. Cintas had made this proposal previously but faced challenges in engaging with UniFirst’s board after their rejection of an earlier bid.
UniFirst’s stock surged by 20.9% to $204.69, remaining below Cintas’ offer price. In other news, Shutterstock and Getty Images announced their merger, creating a $3.7 billion conglomerate intended to enhance their service offerings, with Getty shareholders set to retain a slight majority. Getty shares soared by 24.1%, while Shutterstock lifted by 14.8%.
Overall, the S&P 500 declined by 66.35 points to 5,909.03. The Dow Jones Industrial Average decreased by 178.20 points to 42,528.36, while the Nasdaq composite dropped by 375.30 points to 19,489.68.
Internationally, some notable Chinese firms saw declines due to the U.S. Defense Department designating them as having links to China’s military, which sparked protests from affected companies lobbying for the labels to be overturned.
Among those affected were tech and gaming giant Tencent, AI firm SenseTime, and CATL, the world’s largest battery manufacturer, resulting in a 7.3% decline in Tencent’s Hong Kong stock. As a consequence, the Hang Seng index fell by 1.2%, although markets performed better in other parts of China and across various regions of Asia and Europe.