Wrap: Market Retreats on Profit-Taking, Disappointing Data, Inflation Concerns
2min read The major U.S. stock indices closed lower as profit-taking and disappointing economic data drove a broad market retreat. The S&P 500 and Dow Jones Industrial Average both lost 0.5 percent, while the Nasdaq Composite fell 0.7 percent. The Russell 2000 underperformed, dropping 1.3 percent. Negative market breadth highlighted the downside momentum, with decliners outpacing advancers by wide margins across exchanges.
The selloff was largely attributed to profit-taking following a strong year-to-date rally, with the S&P 500 up 26.9 percent and the Nasdaq Composite up 32.6 percent in 2024. Valuation concerns and a perception that markets were overbought in the short term added to selling pressure. Disappointing fiscal year 2025 guidance from Adobe, which tumbled 13.7 percent, and weaker-than-expected labor market data further fueled bearish sentiment.
Economic reports pointed to a mixed picture. Initial jobless claims rose to 242,000, the highest level since mid-October, while continuing claims edged higher to 1.886 million. These figures support the narrative of a softening labor market, which aligns with expectations of continued Federal Reserve rate cuts. Despite this, inflationary pressures at the producer level added complexity.
The November Producer Price Index showed a 3.0 percent year-over-year increase, up from 2.6 percent in October, driven by higher goods inflation, particularly food. Core PPI, which excludes food and energy, rose 3.4 percent year-over-year, indicating sustained underlying price pressures. This dynamic raises concerns about potential pass-through costs to consumers, complicating the inflation outlook.
Treasury yields rose following the data. The 10-year yield increased by five basis points to 4.32 percent, while the 2-year yield climbed three basis points to 4.19 percent. These moves reflect market uncertainty over inflation persistence despite expectations for further monetary easing.
The likelihood of a 25-basis-point rate cut at the Federal Reserve’s meeting next week remains high at 94.7 percent, according to the CME FedWatch tool, though slightly down from yesterday’s 97.5 percent probability.
Overseas, the European Central Bank cut its key policy rates by 25 basis points, as widely anticipated, reflecting a similar balancing act between inflation management and economic support.
Commodities markets showed mixed movements. Crude oil slipped slightly to $70.07 per barrel, while natural gas rose to $3.46 per mmBtu. Gold and silver saw notable declines, falling to $2709.30 per ounce and $31.67 per ounce, respectively.
The day’s data and market action underscore a delicate economic environment. While labor market softening supports the case for continued Federal Reserve rate cuts, persistent producer-level inflation suggests lingering price pressures.
These conflicting signals leave markets grappling with an uncertain path forward, as investors weigh the implications for earnings growth, consumer spending, and monetary policy in the months ahead.
As the market digests these developments, attention turns to Friday’s economic releases, including import and export price data, which may offer additional insights into inflationary trends and trade dynamics. With major indices still enjoying strong year-to-date gains, investors remain cautious about whether this pullback marks a temporary pause or the start of a broader correction.
