Wall Street stumbles on ‘solidity’ and fears the specter of interest rates

Economic data surprises with strength, undermining hopes of interest rate cuts by the Fed and sending Wall Street into a wave of falls, with inflation fears on the rise

US stocks ended lower on Tuesday (7), as stronger-than-expected economic data raised doubts about the possibility of the Federal Reserve cutting interest rates later this year.

The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36. The S&P 500 fell 66.35 points, or 1.11%, to 5,909.03. The Nasdaq Composite Index lost 375.30 points, or 1.89%, to 19,489.68.

Nine of the 11 main sectors in the S&P 500 ended in the red, with technology and consumer discretionary leading the declines, with declines of 2.39% and 2.21%, respectively. On the other hand, energy and health led the gains, rising 1.06% and 0.58%, respectively.

The Institute for Supply Management (ISM) reported that the US manufacturing sector continued to expand in December. However, the sharp increase in the prices paid index — jumping from 58.2 to 64.4 — indicated rising inflationary pressures, reaching the highest level in almost two years.

U.S. Treasury yields soared on the news, extending recent gains driven by expectations that the next administration’s tariff plans could accelerate inflation. The 10-year bond yield rose more than 7 basis points to 4.693% and hit an intraday high of 4.699%, the highest level since April.

“We’re seeing a recalibration of inflation expectations and Fed rate expectations. That’s triggered this little sell-off in the stock market after the initial enthusiasm,” said Tom Hainlin, senior investment strategist at US Bank Asset Management Group.

The job market also demonstrated resilience. The JOLTS (Job Openings and Labor Turnover Survey) report revealed that job openings increased by 259,000, totaling 8.098 million at the end of November. Layoffs remained low, and worker attrition rates—an indicator of employee confidence—were modest.

“There is no sign here of any sudden labor market collapse or imminent recession,” said Carl Weinberg, chief economist at High Frequency Economics. “Instead, this data signals that the economy is moving closer to full employment, not away from it. The Fed will find no reason to rush rate cuts because the job market doesn’t need it.”

Market participants have also been closely watching the CME FedWatch tool, which now suggests a 68.7% probability of at least a 25 basis point rate cut by June, rising to 72.9% in July. Despite these odds, robust economic data has cast uncertainty over the path of the Fed’s monetary policy, contributing to volatility in stock and bond markets.

With information from News Agencies*