US stocks experienced a significant sell-off on Tuesday, accompanied by a surge in government bond yields, following robust jobs and services data that led investors to speculate that the Federal Reserve may only lower interest rates once this year.
The S&P 500 index on Wall Street fell by 1.1%, while the Nasdaq Composite, known for its focus on technology stocks, closed 1.9% lower. Companies like Tesla and Nvidia saw notable declines, with drops of more than 4% and 6%, respectively.
In the government bond market, the 10-year US Treasury yield, considered a global benchmark for fixed-income assets, rose by 0.08 percentage points to 4.69%, reaching its highest level since April. Higher yields typically indicate lower bond prices.
These movements were driven by reports indicating that the US economy was still in good shape, raising questions about the extent of potential interest rate cuts by the Fed later in the year.
Sonal Desai, Chief Investment Officer at Franklin Templeton Fixed Income, noted, “Investors are gradually realizing that the economy is actually quite robust and that the Fed may not rush to implement significant rate cuts.”
The Institute for Supply Management’s non-manufacturing purchasing managers’ index rose to 54.1 in December, surpassing economists’ expectations. Additionally, data from the US Bureau of Labor Statistics revealed a higher-than-anticipated 8.1 million job vacancies in November, indicating strong demand for US workers.
Investors closely monitoring business activity and labor market health are trying to gauge the Fed’s potential rate cuts. Following the latest data, there is speculation that the central bank might implement a quarter-point rate cut by July with a 35% chance of another cut by year-end.
As investors await December payrolls data, economists predict a decrease in new job additions compared to November. There is anticipation and concern surrounding the upcoming numbers, as they could further impact market movements.
Desai emphasized the significance of Friday’s non-farm payrolls data, stating, “If we do get a blowout number on Friday, I think you’d see this march going even further [in Treasury yields].”