Wall Street’s Mixed Reaction to Positive Economic News

Better-than-Expected Job Market and Business Activity Numbers Disappoint Stock Investors

The U.S. economy’s good news has turned bad for Wall Street, with the stock market experiencing a slump following reports of stronger job market and business activity numbers than expected.

S&P 500 Falls 1.1%, Dow Jones Industrial Average Drops 178 Points

The S&P 500 fell by 1.1% after initially giving up an early gain, while the Dow Jones Industrial Average dropped 178 points (0.4%) and the Nasdaq composite tumbled 1.9%. The market’s decline was largely attributed to rising bond yields in the face of robust economic data.

Rising Bond Yields: A Concern for Stock Investors

The surge in bond yields immediately following the release of encouraging reports on the economy weighed heavily on stock prices. One report indicated that U.S. employers advertised more job openings at the end of November than economists had anticipated, while another showed that finance, retail, and other services businesses experienced faster growth in December than expected.

Good News for Workers, but Pressure on Inflation Looms

The strong economic reports are undoubtedly beneficial for workers seeking employment and those worried about a potential recession. However, such a solid economy could also put pressure on inflation, making the Federal Reserve less likely to deliver interest rate cuts that Wall Street favors.

Federal Reserve’s Interest Rate Cuts: A Key Factor in Market Volatility

The Fed began cutting its main interest rate in September 2024 to boost the economy. However, it has hinted at a slowdown in easing and may be less inclined to cut rates due to concerns about inflation and potential upward pressure from tariffs imposed by President-elect Donald Trump.

Trump Policies: A Potential Threat to Inflation

The threat of tariffs from President-elect Donald Trump has raised worries about possible upward pressure on inflation, which remains stubbornly above the Fed’s 2% target. Expectations for fewer interest rate cuts in 2025 have already been building for weeks, contributing to rising longer-term Treasury yields.

Higher Yields Make Bonds More Attractive

The rise in bond yields has made Treasury bonds more attractive to investors who might otherwise buy stocks, which in turn puts downward pressure on stock prices. The yield on a 10-year Treasury climbed to 4.69% from 4.63% shortly before the release of Tuesday’s reports and from just 4.15% in early December.

Big Tech Stocks Under Pressure

Higher yields can put significant pressure on stocks seen as the most expensive, such as those in the Big Tech sector that have soared in recent months due to artificial-intelligence technology frenzy. Nvidia was one such stock that saw its price drop by 6.2% after Tuesday morning’s economic reports.

Cintas and Getty Images’ Mergers Help to Mitigate Losses

The losses for U.S. stock indexes were somewhat mitigated by the announcement of Cintas’ public offer to buy UniFirst, a smaller rival, for $275 per share in cash. This move helped Cintas shares rise 2%, while UniFirst jumped 20.9% to $204.69.

Shutterstock and Getty Images Merge to Create Visual Content Company

In other news on Wall Street, Shutterstock and Getty Images announced their merger to form a $3.7 billion visual content company providing customers with a broader array of still imagery, video, music, 3D, and other media. The combined company will have Getty Images shareholders owning a slight majority.

S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Close Lower

The S&P 500 closed at 5,909.03 (down 66.35 points), the Dow Jones Industrial Average at 42,528.36 (down 178.20 points), and the Nasdaq composite at 19,489.68 (down 375.30 points).

Stock Markets Abroad: Chinese Companies Fall After U.S. Defense Department’s List Addition

In international markets, some notable Chinese companies fell after being added to a list of companies with ties to China’s military by the U.S. Defense Department. The announcement caused Tencent’s stock in Hong Kong to drop 7.3%, pulling down the Hang Seng index by 1.2%.