Nasdaq Leads Stock Declines as Rate Cut Bets Pare, Nvidia Plummets

U.S. stocks reversed early gains to close lower on Tuesday, January 7, 2025, as investors digested new economic data and adjusted their expectations for Federal Reserve rate cuts. The tech-heavy Nasdaq Composite led the declines, falling 1.9%, while the S&P 500 dropped 1.1%. The Dow Jones Industrial Average ended the session down 0.4%.

The 10-year Treasury yield rose 7 basis points to nearly 4.7%, reflecting growing concerns about inflation. Investors pushed back their bets on when the Fed might cut interest rates, with traders now placing less than a 50% chance of a rate cut before June.

Nvidia, a leading chipmaker, saw its shares plummet over 6% after hitting a record high the previous day. The company had unveiled ambitious artificial intelligence plans, but the market reaction was muted. “This serves as a good reminder that the Fed’s fight against inflation is not over,” said Thomas Ryan, North America economist at Capital Economics.

The Institute for Supply Management‘s latest report showed the manufacturing sector continued to expand, but the prices paid index surged to 64.4, its highest level in nearly two years. Meanwhile, the JOLTS report indicated a decline in job openings and hires, with the quits rate falling to 1.9% in November, signaling reduced worker confidence.

Investors are now almost certain the Fed will keep rates unchanged at its January meeting. The market’s focus will shift to upcoming economic data, including the ADP employment report and the minutes from the Fed’s December meeting, for further clues on monetary policy.