U.S. stocks retreated on Tuesday following a report indicating that economic activity. Furthermore, elevated rates often diminish investor appetite for stocks and other riskier assets.
One Federal Reserve official suggested that the central bank might consider doubling the standard interest rate increase next month, given that inflation has remained stubbornly high for years.
Speaking in London prior to the release of the inflation report, Fed Governor Christopher Waller stated that “a stronger policy move may be needed” if the data showed a key underlying measure of inflation rose by 0.3 percent from September.
In that scenario, he noted that the Fed should weigh a half-percentage-point hike rather than the typical quarter-point increase. He added that moving by only the standard amount could “put our credibility at risk, a risk I am not eager to take.”
Shortly thereafter, Tuesday’s inflation report confirmed that the underlying measure of inflation Waller had highlighted was exactly 0.3 percent, meeting his specified threshold. The Federal Reserve is tasked with maintaining price stability while also supporting a robust labor market.
The news triggered a surge in bond yields as traders adjusted their expectations for future interest rate hikes by the Fed.
The yield on the 10-year Treasury climbed to 4.99 percent from 4.88 percent late Monday. This is a significant shift for the bond market, as this yield influences interest rates for mortgages and various other loans for American households and businesses.
The 10-year Treasury yield had been trending downward since early October, when it peaked above 5.30 percent amid anxieties regarding persistent inflation, rising interest rates, the national debt, and other economic concerns.
Tuesday’s rise in yields occurred despite a decline in oil prices. The price of a barrel of Brent crude dropped 1.2 percent to US$91.49. President Donald Trump stated late Monday that the war in Iran, which had previously driven oil prices higher, “militarily is effectively over.”
Brent crude prices have been retreating from levels above US$112 at the start of the month due to uncertainty surrounding the conflict with Iran.
Rising Treasury yields exert downward pressure on stock prices across the board, with the real-estate sector proving particularly vulnerable.
For instance, higher mortgage rates can discourage potential homebuyers, contributing to a 5.4 percent decline for Lennar, one of the sharper losses within the S&P 500.
Other homebuilders also saw their shares fall, with D.R. Horton dropping 3.8 percent and PulteGroup sliding 3.9 percent. Builders First
Nvidia was the single largest drag on the S&P 500, falling 5.5 percent. The stock has been under pressure since its board announced an investigation into CEO Jensen Huang, who admitted to a relationship with a woman whom U.S. intelligence identified as gathering information for China.
The stock has also experienced volatility amid broader concerns that have recently impacted the artificial intelligence sector. Democratic victories in statehouses across the country last week sparked fears regarding potential restrictions on the construction of AI data centers. These concerns compounded existing worries that AI stock valuations had become overextended and were forming a bubble.
GE Vernova, which provides power for AI data centers, fell 3.9 percent. Micron Technology, a provider of computer memory, dropped 1.1 percent, while CoreWeave, which rents cloud-based access to AI chips, slipped 0.5 percent.
Conversely, other AI-related stocks showed more resilience, with Broadcom climbing 3.9 percent and Advanced Micro Devices rising 1.3 percent.
The recent instability in AI-related stocks had prompted questions regarding whether Anthropic, the developer of the Claude chatbot, might postpone its initial public offering.
However, Anthropic stated in a filing with U.S. regulators on Tuesday that it intends to price its stock at a valuation of roughly US$1.3 trillion. Such a valuation would position it as one of the most valuable companies on Wall Street, surpassing the market caps of Walmart, JPMorgan Chase, ExxonMobil, and Coca-Cola.
In total, the S&P 500 fell 29.01 points to 7,520.93. The Dow Jones Industrial Average dipped 157.86 points to 52,231.89, and the Nasdaq composite sank 187.26 points to 25,065.87.
International stock markets saw gains across much of Europe and Asia.
South Korea’s Kospi index jumped 4.4 percent, marking one of the largest gains globally, driven by strength in its two tech giants that have benefited from the AI boom: Samsung Electronics and SK Hynix.
