U.S. stocks declined sharply on Tuesday, driven by stronger-than-expected economic data that heightened concerns over potential interest rate hikes from the Federal Reserve. The S&P 500 fell 1.13% to close at 5,909.03, while the Dow Jones Industrial Average dropped 0.42%, or 178.2 points, to finish at 42,528.3. The Nasdaq saw the steepest decline, falling 1.5% to close at 19,489.6.
The sell-off followed a report from the Institute for Supply Management that indicated faster-than-expected growth in the U.S. services sector in December, raising fears that the Federal Reserve might hold off on rate cuts and fueling inflation concerns. The 10-year Treasury yield rose more than seven basis points to 4.693%, reaching an intraday high of 4.699%, the highest level since April.
Tom Hainlin, senior investment strategist at U.S. Bank Asset Management Group, noted that the economic data prompted a recalculation of inflation expectations, leading to a sell-off in equities that curtailed an earlier rally. However, he mentioned that the drop in stocks appeared balanced against strong data indicating robust consumer and labor markets that should support long-term economic growth and corporate earnings potential.
The sell-off also saw profit-taking in megacap tech and semiconductor stocks after a previous period of gains. On the trading day, Nvidia led the losses in the tech sector, falling more than 6%. Other tech giants, including Tesla and Meta Platforms, also experienced significant declines, dropping 4% and nearly 2%, respectively. Meanwhile, Palantir Technologies dived below a critical long-term level, and AppLovin fell sharply amid bearish analyst notes.
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Dow Jones futures rise in early trading
Dow Jones futures rose 0.2% as S&P 500 futures and Nasdaq 100 futures gained 0.2% and 0.25%, respectively, in early Wednesday trading. This uptick comes after the steep declines across major indices on Tuesday, which saw the Nasdaq dive in massive volume.
The futures rise occurred despite continued pressure from new data showing an acceleration in activity within the U.S. services industry. The ISM report for December highlighted inflation concerns, with a notable increase in prices. According to the CME’s FedWatch tool, fed funds futures trading data reflected a 95% chance of no reductions at the central bank’s next meeting.
Investors are now focused on upcoming reports, including the ADP private payrolls and jobless claims data due on Wednesday morning. Minutes from the Fed’s December meeting are expected to be released later in the day at 2 p.m. ET, providing further context to the market’s reactions following the recent economic data.
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