U.S. stock markets experienced a downturn on Tuesday as robust economic indicators led to a surge in bond yields, prompting investors to reassess potentially inflated stock valuations. The S&P 500 declined 1.1%, closing at 5,909, while the Nasdaq Composite suffered a more significant drop of 1.9%, finishing at approximately 19,490. The Dow Jones Industrial Average also retreated, albeit less dramatically, with a 0.4% decrease to close at 42,528.
A report highlighting economic activity within the services sector revealed accelerating growth, with a key price metric reaching its highest point in almost two years. Furthermore, the Job Openings and Labor Turnover (JOLTS) report from the Labor Department indicated 8.1 million job openings in November, significantly exceeding analysts’ predictions. This confluence of positive economic news contributed to a rise in the 10-year U.S. Treasury note yield, which jumped 7 basis points to 4.68% in midday trading. Rising bond yields typically occur when bond prices fall, a common phenomenon during periods of escalating inflation.
Earlier in the week, technological advancements appeared to bolster investor confidence. Jensen Huang, CEO of Nvidia, delivered a presentation at the Consumer Electronics Show (CES) in Las Vegas on Monday night. Nvidia’s stock initially gained 3.5% on Monday but experienced a reversal on Tuesday, falling 6%.
Bill Smead, founder and chairman of Smead Capital Management, an investment advisory firm managing over $7.5 billion in assets, cautioned that the exuberant valuations of tech companies might be approaching their peak.
“A small group of stocks driving the S&P 500 to new highs isn’t uncommon, and that’s precisely what we’ve observed,” Smead commented. “However, even the high-growth favorites are starting to feel the pressure.”
Recent weeks have seen Tesla’s stock price fluctuate significantly as the company reported its first-ever decline in annual deliveries amidst intensifying competition. Tesla’s shares continued their downward trend on Tuesday. Similarly, high-performing Nvidia has exhibited volatility throughout the past month, including Tuesday’s decline despite Huang’s well-received keynote address.
“We’re witnessing warning signs emerge,” Smead stated.
Within the S&P 500 sectors, only energy registered gains on Tuesday. Sectors that typically perform well in weaker economies, such as utilities and consumer staples, experienced declines. Surprisingly, sectors that usually benefit from increased economic activity, like consumer discretionary companies, also suffered losses.
Looking ahead, U.S. markets will be closed on Thursday for the funeral of former President Jimmy Carter. Friday will bring the highly anticipated monthly jobs report from the Labor Department, which will provide further insights into the strength of the labor market.
