In an eventful trading day on Tuesday, the stock market initially saw gains but experienced a significant downturn as the session progressed. All the major indices ended the day in negative territory, with the Nasdaq experiencing the most substantial decline.
By the close, the Nasdaq had fallen by 375.30 points, or 1.9%, reaching 19,489.68. The S&P 500 decreased by 66.35 points, or 1.1%, settling at 5,909.03, while the Dow Jones Industrial Average reduced by 178.20 points, or 0.4%, to finish at 42,528.36.
This sharp decline in stock prices coincided with a noticeable rise in treasury yields, with the yield on the benchmark ten-year note climbing to its highest closing level in eight months. The surge in yields, which fueled concerns regarding future interest rate hikes, was triggered by the release of encouraging U.S. economic statistics.
The Institute for Supply Management reported that the U.S. service sector activity exceeded expectations in December. The ISM services PMI increased to 54.1 in December from 52.1 in November, surpassing economists' predictions of 53.3. A reading above 50 suggests expansion in the sector. Additionally, the prices index spiked to 64.4 in December from 58.2 in November, crossing the 60 mark for the first time since January 2024, prompting worries about persistent inflation in services.
An additional report from the Labor Department revealed an unexpected rise in U.S. job openings in November. According to Bill Adams, Chief Economist at Comerica Bank, the data suggests that the Federal Reserve may decelerate interest rate cuts this year more than previously anticipated.
Wall Street’s downward trend was also mirrored in the significant dip in Nvidia’s (NVDA) stock, which dropped 6.2% after hitting a record intraday high. Tesla (TSLA) also faced a 4.0% tumble following a downgrade by Bank of America from a "Buy" to a "Neutral" rating on the electric vehicle manufacturer.
Sector Analysis
The tech sector notably struggled, with software, semiconductor, and computer hardware stocks contributing to the hefty decline in the Nasdaq index. Retail stocks were also under pressure, with the Dow Jones U.S. Retail Index falling by 1.4%. However, housing, brokerage, and telecom sectors saw upward movement, while airline, oil, and gold stocks resisted the overall market downturn.
Global Markets
Internationally, equity markets in the Asia-Pacific region were mostly positive on Tuesday. Japan's Nikkei 225 Index rose by 2.0%, and China's Shanghai Composite Index increased by 0.7%, but Hong Kong’s Hang Seng Index dropped by 1.2%. In Europe, the trend was predominantly upward, with Germany's DAX Index and France's CAC 40 Index each advancing by 0.6%, although the U.K.'s FTSE 100 Index slipped by 0.1%.
In the bond market, treasury prices fell significantly, continuing a downtrend seen in the previous two sessions. Consequently, the yield on the ten-year note rose by 6.5 basis points to 4.683%, marking an eight-month high.
Future Outlook
Looking ahead, Wednesday's trading may be influenced by responses to the newest U.S. economic data and insights from the minutes of the latest Federal Reserve meeting.
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