Stocks Dip as Strong Economic Data Sparks Rate Cut Concerns

Stocks traded lower on Tuesday, relinquishing early gains as strong economic data fueled a spike in Treasury yields and raised doubts about potential Federal Reserve rate cuts later this year. The S&P 500 dipped 0.8%, while the Dow Jones Industrial Average shed 65 points, or about 0.1%. The tech-heavy Nasdaq Composite slid 1.5%.

The Institute for Supply Management reported a faster-than-expected expansion in the U.S. services sector in December, with the PMI price index surging 6.2 points to 64.4. This increase signaled persistent inflationary pressures, prompting investors to reassess the likelihood of aggressive rate cuts by the Fed. The 10-year Treasury yield rose nearly six basis points to 4.675%, its highest level since April.

“You’re getting a recalibration of inflation expectations and Fed rate expectations. That’s triggered this small sell-off in the equity markets after the earlier enthusiasm,” said Tom Hainlin, senior investment strategist at U.S. Bank Asset Management Group. Hainlin noted that the ISM data also reflects a strong consumer and labor market, which could support corporate earnings growth despite the inflationary backdrop.

Tech stocks were among the hardest hit, with Nvidia shares falling more than 5% after hitting a record high earlier in the session. The chipmaker had initially surged following CEO Jensen Huang‘s keynote at the CES 2025 conference, where he unveiled new AI-powered gaming chips and announced a partnership with Toyota. Other megacap tech stocks, including Apple, Microsoft, and Alphabet, also slipped into the red.

Investors are now turning their attention to Friday’s jobs report, which will provide further insight into the labor market’s strength and its implications for monetary policy. The yield on 10-year Treasurys, a key indicator of rate expectations, jumped to 4.69%, reflecting growing uncertainty about the Fed’s next moves.

In other markets, bitcoin retreated from an overnight high of $102,700 to trade at $98,000, while gold futures rose 0.7% to $2,665 an ounce. WTI crude oil futures also gained about 1%, reflecting broader market volatility amid shifting economic signals.