All three main equity benchmarks opened in the green but closed in the red on Tuesday as hot incoming economic data has market participants paring their rate-cut bets ahead of the Federal Open Market Committee's next policy meeting on January 28-29.
The yield on the 10-year U.S. Treasury note rose to 4.691%, its highest level since April, and has now climbed 102 basis points since the Fed started cutting interest rates in September. The U.S. dollar strengthened as well.
Thirty-day fed funds futures prices reflect a 95.2% chance the central bank will hold this month and could even maintain the current target range for the federal funds rate of 4.25% to 4.50% through the summer.
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"People are working themselves into a belief that the Fed may be done with rate cuts – they just may not cut again – and everything that sort of boosts that fear is negative for the market," Sevens Report Research founder Tom Essaye told Barron's. "It's because it pushes yields and the dollar up, and yields and the dollar are trading inversely to stocks right now."
At the closing bell, the tech-heavy Nasdaq Composite shed 1.9% to 19,489. The broader S&P 500 declined 1.1% to 5,909. And the tech-light Dow Jones Industrial Average slid 0.4% to 42,528.
Incoming economic data
The mid-morning release of fresh Institute for Supply Management's Purchasing Managers Index (PMI) data and updated Job Openings and Labor Turnover Survey (JOLTS) numbers from the U.S. Bureau of Labor Statistics triggered Tuesday's reversal.
The PMI expanded for a sixth consecutive month in December, rising to 54.1% from 52.1% in November and topped a consensus forecast of 53.
"Business activity was strong in December, signaling six consecutive months of expansion, but signs of companies getting ready for potential tariffs are widespread," said Raymond James Chief Economist Eugenio J. Alemán in a statement. "Overall, the service sector continues to outperform the manufacturing sector, which contracted for the ninth consecutive month earlier this month."
JOLTS showed that the number of job openings increased by 3.3% to 8.1 million in November compared with the prior month and beat a consensus forecast of 7.7 million.
"The rate of job openings across the labor market continues to moderate — a year ago, 5.4% of jobs were open, compared with 4.8% in November," said NerdWallet Senior Economist Elizabeth Renter. "We'll have more recent data in hand on Friday when we'll learn how many jobs were added across the economy in December. Though the labor market is cooler than the past several years, we're still adding jobs at a healthy rate."
Highlighting this week's economic calendar, the BLS will release its nonfarm payrolls report for December on Friday, January 10, at 8:30 am.
The Magnificent 7 slide
All of the Magnificent 7 stocks that drove the market's gains in 2024 closed lower on Tuesday.
Tesla (TSLA) reflected broader price action, rising as much as 0.8% at the open but closing lower by 4.1% as investors weighed incoming economic data as well as updated analyst views on Elon Musk's company.
BofA Securities analyst John Murphy cut his rating on the Trump stock from Hold to Buy but raised his 12-month price target from $400 to $490, implying 24.3% upside from its closing price on Tuesday. Murphy writes that sentiment has "shifted more positively" but "catalysts around future growth drivers have been more fully recognized."
TSLA has risen 56.8% and has added $459 billion in market cap since the November 5 U.S. presidential election, though it remains unclear exactly how President-elect Donald Trump's tariff, trade and tax policies will impact Elon Musk's company.
Nvidia (NVDA) gave back the $122 billion it gained in market cap on Monday and then some on Tuesday, losing 5.9% the morning after CEO Jensen Huang's keynote address at CES 2025.
Meta Platforms (META) stock declined 1.9% after the social media giant announced that UFC President and CEO Dana White was joining its board of directors and announced an end to its fact-checking program.
Amazon.com (AMZN) was down 2.5%, while Apple (AAPL) and Microsoft (MSFT) lost 1.2% and 1.3%, respectively. Google and Instagram parent and emerging quantum stock Alphabet (GOOGL) was the top-performing Magnificent 7 stock, shedding 1%.
Note that the stock market will be closed on Thursday, January 9, in observance of a national day of mourning and state funeral for former President Jimmy Carter. The bond market will close at 2 pm.
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