Inflation returning? Economic data triggers market volatility, Nasdaq and S&P 500 indexes plummet.

Although monthly employment reports and the Consumer Price Index (CPI) often dominate economic news headlines, investors once again felt the importance of not overlooking the JOLTS report (Job Openings and Labor Turnover Survey) and the Institute for Supply Management (ISM) Services Index on Tuesday. According to Interactive Brokers Senior Economist Jose Torres in a report, "The market was calm in the morning until two economic data releases caused bond yields to surge and the stock market to plummet." U.S. Treasury bond prices plummeted, pushing yields higher, as yields typically move inversely to bond prices. The yield on the 10-year U.S. Treasury bond rose by 6.8 basis points, reaching 4.684%, the highest level since April 25th. Following suit, the stock market began to decline, with the technology sector taking the biggest hit. The Nasdaq Composite Index fell by nearly 1.9%, the S&P 500 Index fell by nearly 1.1%, and the Dow Jones Industrial Average fell by about 178 points. AI chip manufacturer NVIDIA Corporation (NVDA.US) saw its stock price hit a record high before dropping, closing down by 6.2%, despite a cumulative increase of over 4% in the first four trading days of the new year. One of the main reasons for the market's sharp reaction this time was the Prices Paid component in the ISM Services Index. In December, the index recorded 64.4%, significantly higher than November's 58.2%, marking the highest level since the beginning of 2023. This indicates a significant increase in cost pressures in the services industry. Meanwhile, the November JOLTS report showed that job openings in the U.S. increased from 7.8 million in October to 8.1 million, reaching a six-month high. Louis Navellier, founder of Navellier & Associates, commented, "Today, the ISM non-manufacturing price index unexpectedly rose significantly, exceeding expectations, and the data in the JOLTS report also significantly exceeded market forecasts, further pushing up interest rates." These data have raised concerns in the market about "stubborn inflation" and weakened investors' expectations of a rate cut in 2025. According to the CME FedWatch tool, the probability of the Federal Reserve keeping rates unchanged this month has risen to about 95%, up from 91.4% on Monday and 62.9% a month ago. In addition, traders now see a 33% probability of no rate cut at all before June next year, up from 10% a month ago. Navellier pointed out, "Today's economic data once again puts the market in a 'good news is bad news' dilemma. Strong employment data is favorable for GDP and consumer spending, but may also make the Fed more cautious. At the same time, the rise in service sector prices suggests that inflation stickiness remains, but moderate inflation is actually beneficial for businesses' pricing power and profit margins." Although moderate inflation may bring some benefits to corporate profits in the medium term, current investor caution over the combination of high tech stock valuations and rising bond yields continues. "Tuesday's economic data shows that the U.S. economy is accelerating its recovery after the November election, but businesses and consumers remain cautious in the face of uncertainty," Torres stated. "However, this hesitation has been overcome, and Wall Street's focus has shifted to fiscal deficits, Trump tariffs, and inflationary pressures, which could further drive up interest rates and drag down asset prices."