US stocks relinquished early gains to finish Tuesday’s trading session significantly lower. Cautious investors grappled with new economic data, while Nvidia (NVDA) retreated from its record close despite the company’s ambitious artificial intelligence initiatives.
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The benchmark S&P 500 (^GSPC) declined over 1.1%, and the tech-heavy Nasdaq Composite (^IXIC) experienced a sharper loss of approximately 1.9%. The Dow Jones Industrial Average (^DJI) fluctuated throughout the day but ultimately closed down around 0.4%. Concurrently, the 10-year Treasury yield (^TNX) rose roughly 7 basis points, nearing 4.7%. Market expectations for the Federal Reserve’s next interest rate cut were also pushed further out.
Economic Data Fuels Inflation Concerns
Early Tuesday, the Institute for Supply Management’s (ISM) nonmanufacturing Purchasing Managers’ Index (PMI) indicated continued expansion in the service sector last month. However, the prices paid index, a key inflation gauge, surged to a near two-year high of 64.4, up from 58.2. This unexpected jump raised concerns about persistent inflationary pressures.
Capital Economics North America economist Thomas Ryan noted that the surge in prices “is a worry for the Fed,” serving as a stark reminder that the central bank’s battle against inflation is far from over. He added that factors like tariffs and immigration policies could further exacerbate price pressures in the coming year.
JOLTS Data and Impending Jobs Report
Adding to the complex economic picture, the JOLTS (Job Openings and Labor Turnover Survey) report revealed a higher-than-anticipated increase in job openings for November. Conversely, hiring decreased compared to the previous month, and the quits rate, often considered an indicator of worker confidence, dipped to 1.9% from 2.1% in October.
This mixed data sets the scene for Friday’s crucial December jobs report. According to the CME FedWatch tool, investors are now virtually certain that the Federal Reserve will maintain current interest rates at its upcoming meeting. Furthermore, the probability of a rate cut before the June meeting has fallen below 50%.
Nvidia Retreats Despite AI Announcements
Despite CEO Jensen Huang’s CES keynote on Monday unveiling a new AI superchip and other promising products, Nvidia shares reversed earlier gains to close down over 6%. The chipmaker was the Dow’s poorest performer for the day.
Market Reaction and Looking Ahead
The confluence of these factors – concerning inflation data, a mixed labor market outlook, and Nvidia’s unexpected decline – contributed to the overall negative market sentiment. Investors are now reassessing the likelihood of future rate cuts and the potential impact of persistent inflation on the broader economy. Friday’s jobs report will be a critical data point for gauging the health of the labor market and informing future monetary policy decisions.
