Stocks initially surged on Tuesday before experiencing a significant downturn, with the Nasdaq leading the retreat after recording strong gains over the preceding two sessions. As the trading day progressed, the major indices continued to decline, reaching new session lows. The Nasdaq fell by 317.70 points, or 1.6%, to 19,547.28. Meanwhile, the S&P 500 dropped 47.66 points, or 0.8%, to 5,927.72, and the Dow decreased by 87.88 points, or 0.2%, to 42,618.68.
This substantial reversal occurred in the context of a marked increase in treasury yields, with the benchmark ten-year note's yield rising to its highest level in nearly nine months. This jump in yields, spurred by optimistic U.S. economic data, has fueled concerns regarding future interest rates.
Specifically, the Institute for Supply Management reported an unexpected rise in U.S. service sector activity for December. The services PMI climbed to 54.1 from November's 52.1, surpassing economist predictions of 53.3. A reading over 50 signifies growth. Additionally, the report highlighted a sharp increase in the prices index to 64.4 in December from 58.2 in November, crossing 60 for the first time since January 2024, raising fears of persistent service inflation.
Another Labor Department report highlighted an unexpected rise in U.S. job openings in November. On Wall Street, the decline was exacerbated by a 5.4% drop in Nvidia (NVDA) shares after the company reached a record intraday high. Tesla (TSLA) shares also plummeted by 4.7% following a downgrade by Bank of America from Buy to Neutral.
Sector-wise, brokerage stocks notably declined, pulling the NYSE Arca Broker/Dealer Index down by 1.8%. Networking, software, and semiconductor stocks also struggled, significantly contributing to the Nasdaq's sharp drop. Conversely, gold and oil stocks rose due to increasing commodity prices.
In global markets, Asia-Pacific stocks mostly advanced on Tuesday, with Japan's Nikkei 225 up 2.0% and China's Shanghai Composite gaining 0.7%. However, Hong Kong's Hang Seng Index fell 1.2%. Across Europe, markets showed mixed results: the UK's FTSE 100 dipped 0.3%, while Germany's DAX and France's CAC 40 indices both increased by 0.5%.
In the bond market, treasuries continued to decline, with the ten-year note yield rising by 7.3 basis points to 4.689%, inversely related to its price.
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