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US stocks experienced slid on Tuesday, with the S&P 500 and Nasdaq Composite falling significantly. This downturn follows a period of sustained market strength and was primarily driven by stronger-than-expected economic data that dampened expectations of imminent Federal Reserve interest rate cuts.
The S&P 500 declined 1.2%, while the Dow Jones Industrial Average shed 0.6%. The tech-heavy Nasdaq Composite bore the brunt of the selling pressure, plunging 2%. This reversal came after a period of early gains, highlighting the market’s sensitivity to economic data.
The Institute for Supply Management’s services sector index revealed unexpectedly robust growth in December, reigniting concerns about persistent inflation. This data, coupled with the ongoing impact of anticipated tariff increases, led to a significant rise in Treasury yields. The 10-year Treasury yield surged nearly 7 basis points to 4.687%, touching an intraday high of 4.699%, its highest level since April.
This sell-off reflects a recalibration of inflation and Fed rate expectations. While the strong ISM data points to a robust consumer and labor market, it also suggests that the Fed may need to maintain a more restrictive monetary policy for longer.
The market also witnessed profit-taking in megacap technology and semiconductor stocks after a period of consistent gains. Nvidia shares, which had recently hit a record high, fell 5.9% following the unveiling of new chips. Tesla shares declined 4.8% after a downgrade from Bank of America, citing valuation concerns and strategic risks. Meta Platforms, Apple, and Microsoft also experienced notable declines.
This market downturn underscores the delicate balance between economic growth and inflation. While strong economic fundamentals support corporate earnings, persistent inflationary pressures could necessitate continued monetary tightening, potentially impacting market valuations.
