Fed Minutes Loom After Tuesday's Yield Spike
Schwab Market Update Audio
Deep Dive
Why did Treasury yields spike on Tuesday, and what impact did it have on the stock market?
Treasury yields spiked due to stronger-than-expected U.S. services and job openings data, which reduced hopes for future rate cuts. The 10-year Treasury note yield reached a seven-month intraday high of just under 4.7%, and the 30-year Treasury bond approached 5%. This rise in yields, driven by inflation fears and optimism about growth, created a challenging environment for stocks, causing the S&P 500 to fall 1.1%, the Dow Jones Industrial Average to drop 0.42%, and the Nasdaq Composite to plunge 1.89%.
What insights might the December Federal Open Market Committee (FOMC) minutes provide?
The December FOMC minutes, released at 2 p.m. Eastern time, could reveal the specific hesitations behind the dissent during the rate cut decision and highlight any hawkish factors influencing the debate. Policymakers' focus on certain data or economic developments, such as labor market conditions, may offer clues about future Fed strategy. The minutes are particularly significant due to the divergence of views among committee members during the meeting.
What were the key takeaways from the November JOLTS report and December ISM Services PMI?
The November JOLTS report showed job openings at a six-month high of 8.098 million, up by 259,000 from October and above Wall Street's consensus of 7.7 million. The December ISM Services PMI headline of 54.1 exceeded analysts' expectations of 53, indicating continued expansion in the services sector. However, the prices component of 64.4, up from 58.2 in November, raised inflation concerns and contributed to the spike in Treasury yields.
How did rising yields affect specific stock market sectors on Tuesday?
Rising yields negatively impacted sectors like communication services, infotech, and consumer discretionary, which fell 1% or more. Energy and health care sectors, traditionally defensive, managed to stay positive. Infotech, in particular, dropped over 2% due to inflation fears and news of the U.S. adding two Chinese tech companies to its military cooperation list. Dividend-focused sectors like utilities and staples also struggled as yields climbed.
What are the expectations for the upcoming December nonfarm payrolls report?
The December nonfarm payrolls report is expected to show jobs growth of around 154,000, with unemployment at 4.3%. This would be a moderate reading historically but below the 200,000 to 300,000 range seen post-pandemic. The report may contrast with the strong JOLTS and initial jobless claims data, which indicate a relatively healthy job market despite continuing claims remaining near three-year highs.
What technical levels are being watched for the S&P 500 after its recent decline?
The S&P 500 fell below its 50-day moving average near 5,950, with technical support levels being monitored at 5,870 and the 100-day moving average near 5,813. The index closed at 5,909.03, down 1.1%, but found buyers near the 5,900 level in the final half-hour of trading, suggesting potential support at that level.
- Stronger-than-expected U.S. services and job openings data reduced rate cut hopes
- Seven-month highs in long-term Treasury yields
- FOMC cut rates by 25 basis points with one dissent and considerable debate
- CME FedWatch tool shows a 95% chance of a rate pause this month, with only one to two more cuts likely this year
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