The S&P 500 and Nasdaq responded to economic signals, and weakness in the services sector shaped expectations for interest rate adjustments. Despite the strong jobs data, traders reassessed forecasts, leading to higher odds of a rate cut in March.
Economic signals impact stocks
In a dynamic market session, the benchmark S&P 500 index and the Nasdaq experienced fluctuations following the release of economic data. The market responded to signals from the services sector, which influenced expectations of interest rate adjustments in the coming months. This change came shortly after strong employment data tempered earlier predictions of rapid easing.
Sector performance
Financial stocks and major technology companies played a key role in driving market gains. Notable participants include Bank of America and JPMorgan Chase in the financial sector, along with tech giants Amazon.com, Nvidia and Microsoft. Their collective impact ranged between 0.5% and 2.7%.
ISM Survey Insights
A survey by the Institute for Supply Management (ISM) indicated a drop in activity in the services sector, which represents more than two-thirds of the economy. December’s figure of 50.6, down from 52.7 the previous month, prompted a reassessment of economic conditions. Economists, who had anticipated a reading of 52.6, were caught off guard.
Interest rate expectations
The yield on the benchmark 10-year US Treasury bond, which reflects interest rate expectations, initially rose but then adjusted following the ISM data. It closed at 3.998%, underscoring the market’s sensitivity to economic indicators.
Rate cut chances in March
Contrary to initial expectations of a slower pace of rate cuts, traders now forecast a 71% chance of a cut of at least 25 basis points in March. This marks an increase from nearly 55% earlier in the day, as indicated by the CME Group’s FedWatch tool.
Market response and expert comments
Financial stocks led gains among S&P 500 sectors, gaining 0.6% and hitting a high in more than a year and a half. Thomas Hayes, president of Great Hill Capital, highlighted the nuanced employment data and lower-than-estimated ISM non-manufacturing numbers, suggesting that Fed cuts could come sooner than expected.
Weekly Performance and Sector Rotation
Despite the day’s positive moves, both the S&P 500 and Nasdaq were still on track to post their worst weekly results since late October and late September, respectively. During the week, investors capitalized on gains after a nine-week winning streak, prompting a rotation out of high-tech stocks into defensive sectors such as healthcare, financials and utilities.
Market Overview
At midday, the Dow Jones Industrial Average was up 0.08%, the S&P 500 was up 0.39% and the Nasdaq Composite was up 0.43%. Notable stock moves included a significant 36.8% drop for Applied Therapeutics and a 2.1% drop for Palantir Technologies following a downgrade from Jefferies.
Key Partnerships and Future Outlook
Peloton saw an 11.1% increase after announcing an exclusive partnership with TikTok to bring its workout content to the short-form video platform. Investors remained attentive to comments from Richmond Federal Reserve President Thomas Barkin, a key figure in shaping monetary policy.
Market dynamics
The issues that rose exceeded those that fell on both the New York Stock Exchange and the Nasdaq, with ratios of 2.21 to 1 and 1.16 to 1, respectively. During the session, the S&P index recorded 12 new 52-week highs and no new lows, while the Nasdaq recorded 33 new highs and 52 new lows.
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