The stock market closed with losses for the week. Rising market rates were a big driving factor in this week’s action, reflecting worries that the Federal Reserve may maintain higher interest rates for an extended period. The yield on the 10-yr US Treasury surged 18 basis points last week to 4.78% and the 2-yr yield settled 12 basis points higher than last Friday to 4.40%.
These worries were sparked by some economic reports showing that the US economy is stronger than expected. The reports included an ISM Services PMI reading for December and a November Job Openings Report (JOLTS) that showed a noticeable increase in job openings. The added wrinkle in the ISM Services PMI is that it also featured a notable pickup in the Prices Index (to 64.4% from 58.2%), which topped the 60.0% level for the first time since January 2024. The data also included an unexpected drop in weekly Initial Claims (201,000 vs consensus 218,000; prior 211,000). Finally, the December employment report featured a 256,000 increase in non-farm payrolls and a dip in the unemployment rate to 4.1% from 4.2%.
The Fed Minutes for the December 17-18 meeting echoed Fed Chair Powell’s remarks in his press conference after the meeting. The minutes conveyed a belief that the Fed should hold off on another rate cut until it has more confidence in inflation returning to its 2% target or alternatively, more concern about the labor market deteriorating in a more pronounced manner.
Many stocks participated in a broad retreat this week. The market-cap weighted S&P 500 dropped 1.9% and the equal-weighted S&P 500 dropped 1.7%. The Nasdaq Composite fell 2.3% and the Dow Jones closed 1.9% lower. The S&P 500 briefly traded above its 50-day moving average before dropping back below that key level. Only three S&P 500 sectors closed higher and eight closed lower than last Friday. The health care (+0.5%), energy (+0.9%), and materials (+0.1%) sectors closed higher while the rate-sensitive real estate sector logged the largest decline, dropping 4.1% from last week.