Global stock markets experienced declines, while U.S. Treasury yields rose on Tuesday, following the release of data indicating continued strength in the American economy. This resilience suggests the Federal Reserve might implement fewer interest rate cuts this year than previously anticipated by the market.
Wall Street’s major indexes, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite, all closed lower. Technology, consumer discretionary, and communication services sectors were among the hardest hit, while energy and healthcare stocks showed gains.
December data from the Institute for Supply Management revealed an unexpected acceleration in U.S. services sector activity, exceeding expectations. Furthermore, a key measure of input prices reached a near two-year high. Separate data from the Labor Department indicated a surprising increase in U.S. job openings in November, although a slowdown in hiring suggested a moderating labor market.
These robust economic indicators have led to a shift in market expectations regarding Federal Reserve policy. According to the CME FedWatch tool, the market is now pricing in the likelihood of only one Fed rate cut in 2025, compared to two cuts anticipated in December.
“The market seems to be recognizing that tariffs and the deficit raise questions about how we can reduce the deficit given the promised spending on tax cuts and other initiatives the new administration plans to implement,” noted Wasif Latif, chief investment officer at Sarmaya Partners in New York.
Specifically, the Dow Jones Industrial Average decreased by 0.42% to 42,528.36, the S&P 500 declined by 1.11% to 5,909.03, and the Nasdaq Composite fell by 1.89% to 19,489.68.
In contrast to the U.S. market performance, European stocks maintained their gains from Monday, fueled by a report suggesting that President-elect Donald Trump’s advisors are contemplating narrower tariffs than initially projected. The European STOXX 600 index rose 0.32%, marking its second consecutive day of gains. On Monday, the index surged 1.75% following the tariff report, which triggered a rally in automaker stocks. Globally, MSCI’s all-country world index dropped 0.75% to 846.52.
Driven by the positive U.S. economic data, benchmark 10-year Treasury yields reached an eight-month high. The yield on 10-year notes climbed 7.5 basis points to 4.691%, reaching a peak of 4.699%, the highest level observed since April 26.
Latif further commented, “The 10-year yield continues to rise, and the equity market hasn’t fully grasped the implications of rising long-term yields, which are generally unfavorable for equities.”
The U.S. dollar strengthened against other major currencies, with the dollar index, which tracks the greenback against a basket of currencies including the yen and the euro, rising 0.33% to 108.67. The euro weakened against the dollar, falling 0.47% to $1.0341.
In conclusion, the latest economic data highlighting the resilience of the U.S. economy has prompted a reassessment of market expectations regarding Federal Reserve policy and has influenced global market performance, leading to declines in stock markets and a rise in U.S. Treasury yields. The stronger dollar further reflects the impact of the robust economic data.
