Market Wrap: Stocks Retreat as Economic Data Fuels Concerns Over Higher Rates
AInvestTuesday, Jan 7, 2025 10:12 pm ET
2min read
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The stock market started the session with a positive outlook but faced increasing pressure following economic data releases at 10:00 ET. A stronger-than-expected ISM Services PMI reading for December, combined with an uptick in November job openings as reported in the JOLTS survey, raised concerns about the Federal Reserve's future interest rate trajectory.

This led to a sell-off across major indices, with the S&P 500 sliding below its 50-day moving average, triggering additional selling pressure.

The ISM Services PMI surprised to the upside at 54.1 percent, surpassing the consensus estimate of 53.0 percent. While this signals an acceleration in the services sector, a sharp increase in the Prices Index to 64.4 percent (from 58.2 percent) stoked fears of persistent inflationary pressures.

This marked the first time the Prices Index breached the 60 percent level since January 2024, complicating expectations for Federal Reserve rate cuts. In response, the 10-year Treasury yield climbed to 4.68 percent, up seven basis points from the prior session.

Mega Cap Weakness and Sector Performance

Mega cap stocks were central to the day’s decline, with key names like Apple, Tesla, and NVIDIA posting significant losses. Apple dropped 1.1 percent after being downgraded to Sell by MoffettNathanson, while Tesla tumbled 4.1 percent following a downgrade to Neutral by Bank of America Securities.

NVIDIA, initially buoyed by optimism surrounding CEO Jensen Huang’s CES keynote address, saw its gains erased, closing down 6.2 percent.

These losses weighed heavily on the information technology and consumer discretionary sectors, which fell 2.4 percent and 2.2 percent, respectively. In contrast, the energy sector gained 1.1 percent, supported by higher crude oil prices, and health care rose 0.6 percent, making them the only bright spots in an otherwise weak session.

Economic Data Overview

The November trade balance widened to -$78.2 billion, slightly worse than the consensus of -$77.9 billion. Analysts believe the increase in imports may reflect efforts by businesses to preempt President-elect Trump’s proposed tariff policies, potentially creating excess inventory that could dampen import demand in the months ahead.

The JOLTS report showed an unexpected increase in job openings to 8.098 million, adding to signs of resilience in the labor market. While this indicates strong hiring demand, it also supports concerns that wage pressures could persist.

Market Implications and Key Metrics

The Nasdaq Composite closed down 1.9 percent but remains up 0.9 percent year-to-date. The S&P 500 fell 1.1 percent but holds a modest gain of 0.5 percent for the year. The Dow Jones Industrial Average dipped 0.04 percent, erasing its year-to-date gains. Meanwhile, advancing energy prices buoyed optimism in the energy sector, with WTI crude futures rising 0.6 percent to $73.97 per barrel.

Looking Ahead

Investors will closely monitor upcoming economic releases on Wednesday, including the December ADP Employment Change, weekly jobless claims, and the Federal Reserve’s December meeting minutes. These reports will provide further clarity on the state of the labor market and the Fed’s outlook on monetary policy.

Conclusion

The stock market’s initial rally was undermined by stronger-than-expected economic data, which reignited concerns about inflation and higher interest rates. The decline in mega cap stocks and the breach of key technical levels added to the day’s selling momentum. As markets digest these developments, the focus shifts to upcoming data releases, which will likely set the tone for the next phase of trading.

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