The US stock market slumped on Tuesday, following reports that the economy is performing better than expected. The S&P 500 fell by 1.1%, while the Dow Jones Industrial Average dropped by 178 points (0.4%). The Nasdaq composite tumbled by 1.9%. This downturn in the market can be attributed to rising yields in the bond market, which jumped after the release of the encouraging reports on the economy.
Strong Economy Reports Weigh on Stocks
One report indicated that US employers were advertising more job openings at the end of November than economists had anticipated. Another report revealed that activity for finance, retail, and other services businesses grew much faster in December than expected. While these strong reports are welcome news for workers looking for jobs and those concerned about a potential recession, they also raise concerns about inflation.
Inflation Pressures Mount
The threat of tariffs from President-elect Donald Trump has raised worries about possible upward pressure on inflation, which has stubbornly remained just above the Fed’s 2% target. The Institute for Supply Management reported that price increases accelerated in December, adding to concerns about inflation. This, combined with expectations of fewer cuts to interest rates in 2025, sent longer-term Treasury yields upward.
Bond Market Rally Trumps Stocks
The higher yields make Treasury bonds more attractive to investors who might otherwise buy stocks. As a result, stock prices come under pressure as the super-safe bonds pay notably more. The yield on a 10-year Treasury climbed to 4.69% from 4.63% shortly before the release of Tuesday’s reports and from just 4.15% in early December.
Tech Stocks Take a Hit
High yields can put heavy pressure on stocks seen as the most expensive, which pulls the lens toward Nvidia and other Big Tech stocks that have soared in the frenzy around artificial-intelligence technology. Nvidia had been on track to set another all-time high in morning trading after CEO Jensen Huang unveiled a suite of new products and partnerships. However, after Tuesday morning’s economic reports, which hit the market after its first half hour of trading, Nvidia swung to a loss of 6.2% and became the heaviest weight on the S&P 500.
Losses for Tech Giants
Losses for Amazon, Tesla, Apple, and Microsoft were the next-strongest forces dragging the index lower. The market’s reaction is consistent with Bank of America strategists’ view that "the market is shifting into a ‘good news is bad news’ environment again."
Economic Reports Ahead
The stakes are high for Friday’s coming update on the US job market, which economists expect will show a slowdown in overall hiring. They’re looking for growth of 156,500 jobs in December, according to FactSet. A "Goldilocks" reading for the US stock market that would be solid but not too strong for the Fed would likely be in the 125,000 to 175,000 range, along with an unemployment rate of 4.2%, according to Bank of America.
Some Stocks Perform Well
Helping to keep Tuesday’s losses for US stock indexes in check was Cintas, which rose 2% after making public its offer to buy its smaller rival, UniFirst, for $275 per share in cash. Shutterstock and Getty climbed after they announced they were joining to become a $3.7 billion visual content company to provide customers with a broader array of still imagery, video, music, 3D, and other media.
International Markets
In stock markets abroad, some notable Chinese companies fell after the US Defense Department added dozens of them to a list of companies it says have ties to China’s military. The announcement caused some of the companies to protest and say they will seek to have the decision reversed. Added to the list were gaming and technology company Tencent, artificial intelligence firm SenseTime, and the world’s biggest battery maker CATL.
Global Markets in Focus
The Hang Seng index fell 1.2% due to Tencent’s stock that trades in Hong Kong falling by 7.3%. However, indexes were stronger elsewhere in China and across much of Asia and Europe.
Contributing writers Yuri Kageyama and Matt Ott provided additional insights on the market’s performance.