Despite the monthly employment report and Consumer Price Index (CPI) often dominating economic news headlines, investors felt again on Tuesday the significance of the JOLTS report (Job Openings and Labor Turnover Survey) and the ISM services index.

Analyst Jose Torres pointed out in a report: "The market performed steadily in the morning until the release of two economic data points, which caused yields to soar and the stock market to plunge." U.S. Treasury prices plummeted, driving up yields, which usually have an inverse relationship with bond prices. $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ It climbed 6.8 basis points to 4.684%, reaching the highest level since April 25.

The stock market subsequently declined, with the Technology Sector being hit the hardest.$Nasdaq Composite Index (.IXIC.US)$It fell nearly 1.9%. $S&P 500 Index (.SPX.US)$ Dropped over 1.1%, $Dow Jones Industrial Average (.DJI.US)$ Dropped about 178 points. AI Chip manufacturer$NVIDIA (NVDA.US)$The stock price opened at a historic high but turned to drop, closing down by 6.2%, although in the first four trading days of the new year it still accumulated an increase of over 4%.

One of the main reasons for the market's violent reaction was the prices paid component of the ISM services index. The index recorded 64.4% in December, well above November's 58.2%, reaching the highest level since the beginning of 2023. This indicates that cost pressures in the services industry have significantly increased.

Meanwhile, the November JOLTS report showed that the number of job vacancies in the USA increased from 7.8 million in October to 8.1 million, reaching a six-month high. In response, Louis Navellier, founder of Navellier & Associates, stated: "Today, the ISM non-manufacturing price index unexpectedly rose sharply, exceeding expectations, while the data from the JOLTS report also significantly surpassed market forecasts, further pushing up interest rates."

These data have raised market concerns about "persistent inflation" and weakened investor expectations for interest rate cuts in 2025. According to the CME FedWatch tool, the market now expects about a 95% chance that the Federal Reserve will keep interest rates unchanged this month, up from 91.4% on Monday and 62.9% a month ago. Additionally, traders expect the probability of no rate cuts at all before June next year to rise from 10% a month ago to 33%.

Navellier pointed out, "Today's economic data once again puts the market in a 'good news is bad news' dilemma. Strong employment data is beneficial for GDP and Consumer spending, but it could also make the Federal Reserve more cautious. Meanwhile, the rising prices in the service sector suggest that inflation persistence is still present, but moderate inflation actually benefits companies' pricing power and margins."

Despite the medium-term inflation potentially being Bullish for corporate profits, current investors are displaying caution towards the combination of high valuations in technology stocks and the continued rise in Treasury yields.

"Economic data on Tuesday indicated that the USA economy is accelerating recovery after the November elections, but businesses and consumers remain cautious in the face of uncertainty," Torres said. "However, this hesitation has been overcome, and Wall Street's focus has shifted towards fiscal deficits, Trump tariffs, and inflationary pressures, which may further push up interest rates and weigh on Asset prices."

Editor/Rocky