Although monthly employment reports and the Consumer Price Index (CPI) often make headlines in economic news, investors once again felt on Tuesday that the importance of the JOLTS report (Job Vacancy and Labor Flow Survey) and the Institute for Supply Management (ISM) service sector index cannot be overlooked.

The Zhitong Finance App learned that Jose Torres, senior economist at Interactive Brokers, stated in a report: “The market performance was stable in the morning until two economic data were released, which led to a sharp rise in yield and a severe fall in the stock market.” The price of US Treasury bonds has plummeted, driving up the yield, which usually has an inverse relationship with the price of bonds. The 10-year US Treasury yield climbed 6.8 basis points to 4.684%, the highest level since April 25.

The stock market then declined, and the tech sector bore the brunt. The Nasdaq Composite Index fell nearly 1.9%, the S&P 500 fell nearly 1.1%, and the Dow Jones Industrial Average fell about 178 points. The stock price of AI chip maker NVDA.US (NVDA.US) turned down after opening a record high, and closed down 6.2%, even though the first four trading days of the new year had a cumulative increase of more than 4%.

The price payment index in the ISM Service Industry Index is one of the main reasons for this sharp market reaction. The index recorded 64.4% in December, far higher than 58.2% in November, the highest level since the beginning of 2023. This indicates a significant increase in cost pressure in the service sector.

Meanwhile, the November JOLTS report showed that the number of job vacancies in the US increased from 7.8 million in October to 8.1 million, reaching a six-month high. In response, Louis Navellier, founder of Navellier & Associates, said, “Today, the ISM non-manufacturing price index unexpectedly rose sharply, exceeding expectations, and the data reported by JOLTS was also significantly higher than market forecasts, further boosting interest rates.”

The data raised market concerns about “stubborn inflation” and weakened investors' expectations for interest rate cuts in 2025. According to the CME FedWatch tool, the market expects that the probability that the Fed will keep interest rates unchanged this month has risen to about 95%, up from 91.4% on Monday and 62.9% a month ago. Furthermore, traders expect the probability of not cutting interest rates at all until June next year to 33% from 10% a month ago.

Navellier pointed out, “Today's economic data has once again left the market in the dilemma of 'good news is bad news'. Strong employment data favors GDP and consumer spending, but it could also make the Federal Reserve more cautious. At the same time, the rise in service prices suggests that inflation is still sticky, but moderate inflation is actually beneficial to companies' pricing capacity and profit margins.”

Although medium-term inflation may be beneficial to corporate profits, investors are currently cautious about the combination of high valuations of technology stocks and rising treasury bond yields.

“Economic data on Tuesday showed that the US economy accelerated recovery after the November election, but businesses and consumers remained cautious in the face of uncertainty,” Torres said. “However, this hesitation has been overcome, and Wall Street's focus is shifting to fiscal deficits, Trump tariffs, and inflationary pressures, which may further push up interest rates and drag down asset prices.”