(Bloomberg) — Stocks got hammered as a selloff in the world’s biggest bond market deepened on speculation the Federal Reserve won’t cut interest rates before July amid inflation risks.
Following a recent rally, equities lost traction on Tuesday as a report on US service providers showed a price gauge hitting the highest since early 2023. A selloff in big tech weighed heavily on Wall Street trading, with the S&P 500 down over 1% and the Nasdaq 100 falling almost twice as much. Nvidia Corp. sank 6.2%. Treasuries fell across the curve, with a $39 billion sale of 10-year bonds drawing the highest yield since 2007. The market also came under pressure amid a flurry of investment-grade deals.
“Rising yields are not necessarily an issue for stocks unless, of course, the economy starts to fail. Then all bets are off,” said Kenny Polcari at SlateStone Wealth. “But rising yields will be an issue if inflation rears its ugly head.”
To Mark Streiber at FHN Financial, the latest US services report supports the Fed’s recent communication that rate cuts would likely slow in 2025 due to upside price risks. Fed Bank of Atlanta President Raphael Bostic said officials should be cautious given uneven progress on lowering inflation.
“The Fed will likely switch from cutting interest rates at every decision, as they did between September and December, to pausing in between rate cuts in 2025,” said Bill Adams at Comerica Bank.
Separate data Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services — while other industries showed more mixed demand for workers.
The S&P 500 briefly fell below 5,900. The Nasdaq 100 slid 1.8%. The Dow Jones Industrial Average slid 0.4%. A gauge of the “Magnificent Seven” megacaps sank 2.5%. The Russell 2000 index of smaller firms dropped 0.7%.
The yield on 10-year Treasuries climbed six basis points to 4.69%. In the UK, 30-year yields hit the highest since 1998, raising the prospect of tax increases to meet fiscal rules. Bitcoin dropped below $100,000.
With Treasury yields climbing again, Bank of America Corp. strategists predict traders could return to perceiving strong economic data as negative, as it signals the Fed will need to keep rates elevated for longer.
Growth scare is subsiding as inflation and rates become a bigger focus, the team led by Ohsung Kwon said.
Swap traders who as recently as late September were fully pricing in another Fed rate cut by March scrapped wagers there will be one until the second half of the year.
Another indication of bond market anxiety can be seen in a metric called the term premium, which is the additional yield that investors demand to hold long-dated debt instead of rolling over shorter-term securities as they mature. It recently hit the highest level since 2015.
Equity investors will also suffer if Treasury yields stay high and companies have to face persistently high borrowing costs, according to Apollo Global Management’s Torsten Slok.
To Lauren Goodwin at New York Life Investments, because growth expectations are sanguine, unless we see a shock to employment or inflation, investors should give the market the benefit of the doubt.
“Our base case US economic view is a constructive one – that US activity will come in near its long-term trend of 2% for the year – but that still calls for a modest slowdown over the course of this year,” she said. “A reversal in inflation will require a policy shock – a concern that will linger over the market, but that can’t be handicapped.”
In the meantime, Goodwin says duration is still not her favorite place to take risk.
“Market yields continue to edge higher even amid 100 basis points of policy rate cuts,” she noted. “This is highly unusual, because soft landings are highly unusual and because higher government spending and global bond yields are changing the supply-demand balance for US debt.”
She estimates that the reasonable range of the 10-year Treasury yield this year is a “wider-than-normal range” between 3.5% and 5.1% — “and one that likely does not reward bold positioning in interest rates,” she concluded.
The 10-year yield has now risen more than one full percentage point since its close on the day before the Fed’s first rate cut in mid-September, noted Bespoke Investment Group strategists. Around current levels, it’s right on the cusp of “extreme cheap” territory, using the firm’s fair-value model.
“Bond ETFs have become very oversold once again, and in the near term, we’d rather be long than short,” Bespoke concluded.
Meantime, JPMorgan Chase & Co. strategists said the Treasury yield curve has steepened too much relative to the “fair value.”
“It appears to us that the curve has moved ahead of its fundamental drivers,” strategists including Jay Barry wrote. “As we look ahead, this decoupling presents risks the curve could flatten back over the near term.”
Barry and his colleagues, however, are reluctant to initiate a curve flattening trade even they see the steepening move becoming “stretched.”
“We think the Fed’s reaction-function and structural shifts in the demand for Treasuries support a steeper curve, so we are hesitant to swim upstream against this longer-term trend,” they wrote.
“By now, plenty of faces have been ripped off by this most recent bond-market tantrum, and even though we’d love to say that the worst is over, there’s no indication that shorts are exhausted or that data is supportive of a duration rally,” said Thomas Tzitzouris at Strategas.
“That could change by Friday, with the jobs number, and we have to assume that there will be some profit taking on duration shorts by tomorrow, with equity markets being closed on Thursday. But for now, the growth in the short base appears to be tentatively supported by growth in float,” he said.
Tzitzouris also noted that this is not just bad news for Treasuries, but with corporates trading at their tightest levels of the cycle adjusted for default risk, we’re entering a “danger zone” for both risk assets and safe havens.
Corporate Highlights:
-
Meta Platforms Inc. will end third-party fact checking on its social media platforms in the US, letting users comment on posts’ accuracy with a community notes system it said will promote free expression.
-
Uber Technologies Inc. said it’s teaming up with Nvidia in order to accelerate the development of autonomous driving technology.
-
Johnson & Johnson said its combination therapy for lung cancer outperformed AstraZeneca Plc’s blockbuster Tagrisso in a head-to-head study, a finding that could change the standard of care for one of the most deadly tumor types.
-
Toronto-Dominion Bank will consider the fate of its 10.1% stake in Charles Schwab Corp. as part of a strategic review stemming from the Canadian bank’s US money-laundering scandal, incoming Chief Executive Officer Raymond Chun said.
-
Getty Images Holdings Inc. agreed to acquire rival stock-photo provider Shutterstock Inc. in a deal that would create a combined company worth about $3.7 billion including debt.
-
Paychex Inc. agreed to acquire rival payroll processor Paycor HCM Inc. for about $4.1 billion in cash, including debt.
-
Apollo Global Management Inc. and BC Partners agreed to acquire a controlling stake in GFL Environmental Inc.’s environmental services unit, in a deal that values the business at C$8 billion ($5.6 billion) including debt.
-
Phillips 66 agreed to acquire EPIC NGL, an owner of natural gas liquids pipelines, for $2.2 billion in cash as it moves to expand its transport business in the Permian basin in the southwestern US.
-
Southwest Airlines Co. will gain $92 million from selling and leasing back 35 of its Boeing Co. 737-800 aircraft, the first move in the carrier’s broader plan to monetize part of its large fleet and extensive aircraft order book.
Key events this week:
-
Eurozone PPI, consumer confidence, Wednesday
-
US ADP employment, Fed minutes, consumer credit, Wednesday
-
Fed’s Christopher Waller speaks, Wednesday
-
China CPI, PPI, Thursday
-
Eurozone retail sales, Thursday
-
US state funeral and national day of mourning for former President Jimmy Carter is a federal holiday, Thursday
-
Japan household spending, leading index, Friday
-
US jobs report, consumer sentiment, Friday
Some of the main moves in markets:
Stocks
-
The S&P 500 fell 1.1% as of 4 p.m. New York time
-
The Nasdaq 100 fell 1.8%
-
The Dow Jones Industrial Average fell 0.4%
-
The MSCI World Index fell 0.8%
-
Bloomberg Magnificent 7 Total Return Index fell 2.5%
-
The Russell 2000 Index fell 0.7%
Currencies
-
The Bloomberg Dollar Spot Index rose 0.2%
-
The euro fell 0.4% to $1.0344
-
The British pound fell 0.3% to $1.2480
-
The Japanese yen fell 0.2% to 157.93 per dollar
Cryptocurrencies
-
Bitcoin fell 5% to $96,530.7
-
Ether fell 7.6% to $3,390.43
Bonds
-
The yield on 10-year Treasuries advanced six basis points to 4.69%
-
Germany’s 10-year yield advanced four basis points to 2.48%
-
Britain’s 10-year yield advanced seven basis points to 4.68%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Julien Ponthus and Aya Wagatsuma.
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.
