Wall Street Wobbles as Strong Economy Sends Bond Yields Higher

U.S. stock indexes slipped on Tuesday despite better-than-expected reports on the job market and business activity.

Why It Matters

The stock market is reacting to positive economic reports which may mean the possibility of fewer interest rate cuts by the Federal Reserve and higher bond yields.

What To Know

Better-than-expected data showed job openings increased in November, and business activity across key sectors like finance and retail surged in December.

The S&P 500 slipped 0.4 percent on Tuesday, while the Dow Jones Industrial Average dropped 42 points, or 0.1 percent.

Traders work on the floor at the New York Stock Exchange in New York's Financial District Thursday, Jan. 2, 2025. U.S. stock indexes slipped on Tuesday despite better than expected economic reports. Seth Wenig/AP

The Nasdaq composite took a sharper hit, down 0.9 percent by mid-morning trading.

The yield on the 10-year Treasury note jumped to 4.68 percent, up from 4.63 percent just before the reports and 4.15 percent in early December.

Rising Treasury yields often draw investors away from stocks.

Higher Treasury yields also make it more expensive for everyone to borrow, from huge multinational corporations to homebuyers looking for a mortgage.

Treasury yields have been rising in part because the U.S. economy has remained so solid and defied predictions for a recession.

Will the Federal Reserve Cut Interest Rates?

The Fed has hinted it may cut rates fewer times in 2025 than previously anticipated.

Interest rates for consumers have been rising since the Federal Reserve suggested last month it would cut its benchmark interest rate, known as the federal funds rate, just twice next year, rather than the four times estimated in September.

This has already had a knock-on effect on the 30-year mortgage rate in the United States, which reached a six-month high this week and also leapfrogged the rate during the same stretch one year ago.

While inflation has eased from its peak, it remains slightly above the Fed's 2 percent target, complicating the central bank's ability to lower rates.

Which Companies Are Bucking the Trend?

Cintas rose 3.1 percent after offering $275 per share to acquire UniFirst.

UniFirst's stock surged 27.7 percent, but it remains below the offer price.

Getty Images and Shutterstock announced a merger to form a $3.7 billion visual content powerhouse.

Getty shares jumped 25.6 percent, while Shutterstock gained 21.5 percent.

What People Are Saying

Federal Reserve Chairman Jerome Powell told reporters when announcing the December rate cut: "The economy is strong overall and has made significant progress toward our goals over the past two years."

Thomas Simons and Sam Saliba, economists at investment bank Jefferies: Described the decline in jobless claims as "encouraging," but cautioned that holiday-related seasonal adjustments could affect accuracy.

What Happens Next

Investors will closely monitor upcoming economic data, particularly on inflation and employment, for clues about the Fed's next move.

The Federal Reserve's meeting in early February will be a pivotal moment, with markets keenly awaiting updates on interest rate policy.

This article includes reporting from the Associated Press