01/07/2025 Summary of the US Stock Market

On January 7, 2025, the US stock market experienced its worst decline in three weeks, driven primarily by inflation concerns and expectations that the Federal Reserve will not cut interest rates before July. This uncertainty caused a sharp rise in Treasury yields and a broad selloff in equities.

---

Major Indices:

• S&P 500: Down 1.1%, closing at 5,909.03.
• Dow Jones Industrial Average: Declined by 0.4%, ending at 42,528.36.
• Nasdaq Composite: Dropped 1.9%, closing at 19,489.68.

---

Reasons for the Decline:

1. Inflation Concerns:
   The ISM Services PMI showed a surge in price indicators, reaching the highest level since early 2023, dampening investor sentiment.
2. Federal Reserve's Rate Outlook:
   Rising inflation led to expectations that the Fed might delay rate cuts, resulting in a 6-basis-point increase in the 10-year Treasury yield to 4.69%.
3. Treasury Yield Pressures:
   A $39 billion auction of 10-year Treasury bonds recorded the highest yield since 2007. High-grade corporate bond issuances further weighed on the Treasury market.

---

Key Sector Movements:

• Technology Stocks:
  • NVIDIA: Fell 6.2% after hitting an all-time high.
  • Tesla: Dropped 4% due to a downgrade from Bank of America.
  • Apple: Declined 1.1% after MoffettNathanson downgraded its rating.
• Quantum Computing Stocks:
  Shares in this sector declined after NVIDIA CEO Jensen Huang commented at CES that quantum computing could take 15 to 30 years to become practical.

---

Market Expert Insights:

• Adam Crisafulli (Vital Knowledge):
  "Treasury yields continue to rise due to robust growth, high inflation, the Fed’s hawkish stance, and concerns over unsustainable US fiscal policies."
• Kenny Polcari (SlateStone Wealth):
  "Rate hikes alone may not significantly impact equities unless inflation reaccelerates."
• Mark Strieper (FHN Financial):
  "The services sector report supports the Fed’s view that rate cuts will slow in 2025 due to inflation risks."
• Bill Adams (Comerica Bank):
  "The Fed is likely to adopt a cautious rate-cut approach in 2025, followed by a potential pause."

---

Economic Indicators:

• Job Openings:
  November job openings hit a six-month high due to strength in the services sector, though demand varied across other industries.
• Investor Sentiment:
  Swap traders retracted bets on rate cuts by March and now expect no rate reductions until the second half of 2025. Term premiums, a measure of Treasury market risk, reached their highest since 2015.

---

Corporate Debt and Investor Concerns:

• Torsten Slok (Apollo Global Management):
  "Sustained increases in Treasury yields could raise borrowing costs for corporations, adversely affecting equity markets."
• Lauren Goodwin (New York Life Investments):
  "This year, the 10-year Treasury yield may fluctuate between 3.5% and 5.1%, reflecting a broader range than usual."

---

Conclusion:

The sharp decline in the stock market reflects heightened uncertainty over inflation and the Federal Reserve’s monetary policy. The selloff was particularly pronounced in the technology sector, and rising Treasury yields may pose challenges for corporate borrowing and equity investors. Market participants are advised to closely monitor economic data and Fed policy for informed decision-making.