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Tech stocks got slammed because economic data sparked a jump in bond yields
While the monthly jobs report and consumer-price index readings get a lot of hoopla, investors got a reminder Tuesday that it doesn’t pay to sleep on the so-called JOLTS report or the Institute for Supply Management’s services index.
“Markets started the morning in stride until a pair of economic releases sent yields to the nosebleeds and equities to the basement,” said Jose Torres, senior economist at Interactive Brokers, in a note.
Treasury prices tumbled, sending up yields, which move in the opposite direction. The yield on the 10-year note BX:TMUBMUSD10Y rose 6.8 basis points to 4.684%, its highest 3 p.m. Eastern time level since April 25 . Stocks turned south, with tech taking the brunt of the pain; the tech-heavy Nasdaq Composite COMP dropped 1.9%, while the S&P 500 SPX shed 1.1%. The Dow Jones Industrial Average DJIA dropped around 178 points, or 0.4%.
Shares of AI chip maker Nvidia Corp. NVDA gapped to an all-time high at the opening bell, but then turned south, falling 6.2%. The stock remains up more than 4% over the first four trading days of the new year.
See: Nvidia’s stock heads for worst drop in months as CES speech lacked one big thing
The price component of the ISM services index appeared to be the main culprit. The prices-paid index compiled by the ISM as part of its broader service-company survey jumped to a reading of 64.4% in December, from 58.2%. That’s the highest level since early 2023.
The November JOLTS — Job Openings and Labor Turnover Survey — showed job openings in the U.S. rose to a six-month high of 8.1 million in November, from 7.8 million the previous month.
Read: Job openings reverse long decline, but the U.S. labor market is still not out of the woods
“Today, interest rates gapped up meaningfully on the economic news reported — in particular, the ISM nonmanufacturing prices, which were expected to fall slightly, instead came in up as much as we’ve seen since Feb ‘23. Also contributing was the November JOLTS job-opening number, expected to rise slightly from the reported October number, which came in much higher and the October number was revised higher,” said Louis Navellier, founder of Navellier & Associates, in a note.
The data renewed concerns about sticky inflation and served to further chill expectations for rate cuts in 2025.
Expectations for the Federal Reserve to stand pat at its meeting later this month further solidified, with fed-funds futures indicating traders see a roughly 95% probability of no move, up from around 91.4% Monday and 62.9% a month ago, according to the CME FedWatch Tool . Traders have priced in a 33% probability of no rate cuts at all through June, up from just 10% a month ago.
“We’re back to the ‘good news is bad news’ situation for the day with a strong job number, good for GDP and consumer spending, roiling the market because it may give the Fed pause,” Navellier wrote. ”Likewise, the higher price report hints at sticky inflation, but mid-single-digit inflation is actually good for pricing power and profit margins.”
MarketWatch Live: Good news on the economy likely shifts to bad news from here, says BofA Global
That may be the case. But for now, investors seemed to show a sense of wariness about the combination of stretched valuations, particularly for highflying tech stocks, and a continued rise in Treasury yields.
Economic figures on Tuesday signaled a U.S. economy that is accelerating in the wake of the November election, with companies and consumers taking a cautious stance amid the accompanying uncertainty, said Torres at Interactive Brokers.
“But now that the hesitancy has been overcome, Wall Street’s focus has shifted to fiscal deficits, Trump tariffs and inflation, which can potentially send rates further north, weighing on asset prices,” he said.
Also see: Stocks appear ‘rate sensitive once again’ as bond yields press higher