U.S. stocks sold off on Tuesday, while government bond yields jumped, after strong jobs and services data prompted investors to bet that the Federal Reserve would only cut interest rates. ‘only once this year.
Wall Street’s S&P 500 stock index fell 1.1 percent, while the tech-heavy Nasdaq Composite closed down 1.9 percent.
Electric car maker Tesla and semiconductor giant Nvidia were among the biggest losers, losing more than 4 percent and 6 percent, respectively.
In government bond markets, the 10-year US Treasury yield… a world reference for fixed-income assets, rose 0.08 percentage points to 4.69 percent, its highest level since April. Higher yields indicate falling prices.
The moves follow reports that the world’s largest economy remained in good health, casting further doubt on the likely extent of the Fed’s interest rate cut later this year.
“The bond market is finally accepting that the Fed is not going to step in and save us all with a whole bunch of liquidity and rate cuts,” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “[Investors are] looking at the data and slowly digesting the fact that the economy is actually quite strong.
The Institute for Supply Management’s non-manufacturing purchasing managers’ index, a gauge of activity in the sprawling U.S. services sector, rose to 54.1 in December, above market expectations. economists of 53.3. A reading above 50 signals expansion.
Separate data from the U.S. Bureau of Labor Statistics showed there were 8.1 million job vacancies in November, above forecasts of 7.7 million openings, indicating surprisingly strong demand for American workers.
Investors are closely watching measures of business activity and the health of the labor market to gauge how much and how quickly the Fed will cut interest rates.
Following Tuesday’s data, investors were betting that the central bank would cut rates by a quarter point by July, with about a 35 percent chance of another such move by July. end of the year. Earlier in the day, the chances of a second quarter-point cut were almost 70 percent.
The Fed first cut rates from 23-year highs in September, then made two more cuts before the end of 2024. However, in December, policymakers signaled a slower pace of easing in 2025, highlighting continued concerns about inflation and unsettling investors.
In a week shortened by the closing of the stock markets on Thursday and a half-day for bonds, investors are also preparing for employment data for the month of December.
Economists polled by Reuters expect Friday’s figures to show that U.S. employers created 160,000 new jobs last month, down sharply from 227,000 in November.
Desai, of Franklin Templeton, said “people are bracing for Friday’s nonfarm wages and fearing a blowout.”
“If we get a blowout number on Friday,” she added, “I think you would see this march go even further.” [in Treasury yields].”
