Tech Stocks Tumble as Rising Yields Spark Inflation Fears, Market Seesaws in Response

Key events:

• USA - ADP Nonfarm Employment Change (Dec)
• USA - Initial Jobless Claims
• USA - Crude Oil Inventories
• USA - 30-Year Bond Auction
• USA - FOMC Meeting Minutes

The S&P 500 ended significantly lower on Tuesday, dragged down by tech stocks as rising Treasury yields sparked fresh concerns over persistent inflation. This dampened expectations for additional Federal Reserve rate cuts.

The Dow Jones Industrial Average dropped 177 points, or 0.4%, while the S&P 500 fell by 1.1%. The NASDAQ Composite, however, rose 65 points, marking a 1.9% increase.

Nvidia (NASDAQ: NVDA) slid 6% on Tuesday, reversing its earlier gains as the surge in Treasury yields pressured growth sectors, particularly tech. This downturn follows the company's brief stint at a record high the previous day.

At CES 2025 in Las Vegas, Nvidia's CEO Jensen Huang highlighted the company's move to bring its data center AI chip technology to consumer PCs and laptops. Despite this, Nvidia's stock couldn't escape the broader tech sector's struggles.

Meta Platforms (NASDAQ: META) saw a 2% decline after announcing the discontinuation of its third-party fact-checking program in the US, transitioning to a 'Community Notes' system similar to that of social media platform X.

Microsoft (NASDAQ: MSFT) shares dipped 1% following the company's declaration of a $3 billion investment to expand its Azure cloud and AI capacities in India.

Tesla Inc. (NASDAQ: TSLA) experienced a 4% fall after Bank of America downgraded the electric vehicle maker from buy to neutral, citing concerns over valuation.

The Japanese Yen remained under pressure, languishing near multi-month lows against the US Dollar during Wednesday's Asian session. The widening US-Japan rate differential, fueled by the Federal Reserve's hawkish stance, has continued to weigh on the yen. Despite this, speculation about potential intervention by Japanese authorities has limited further declines.

Finance Minister Katsunobu Kato's verbal intervention, promising action against excessive currency moves, added to the mix of factors influencing the yen. Meanwhile, Bank of Japan Governor Kazuo Ueda indicated possible future rate hikes, depending on economic developments, which some investors anticipate could occur in early 2025.

The Australian Dollar struggled against the US Dollar for the second consecutive session, with the AUD/USD pair retaining losses even after stronger-than-expected monthly inflation data. The trimmed mean core inflation measure edged closer to the Reserve Bank of Australia's target range, fueling speculation of potential rate cuts in the near term.

On the construction front, Australia's building permits fell 3.6% month-over-month in November, missing market expectations and marking the first decline in three months, according to the Australian Bureau of Statistics.

China's People's Bank of China announced measures to support the economy, with plans to assist banks in expanding loans under a trade-in initiative.

The NZD/USD pair showed mild losses during the early Asian session on Wednesday, reacting to robust US Services PMI data for December that pointed to a resilient services sector. The stronger-than-expected PMI reading has bolstered the US Dollar, as market participants reassess the pace of Federal Reserve rate cuts.

The USD/CAD pair struggled to build on its recent gains, trading near the mid-1.4300s, amid hopes that Canada's economy might sidestep the broader impact of US tariffs. Firm crude oil prices also provided some support to the Canadian Dollar.

Geopolitical tensions and fears of a prolonged trade war continue to support safe-haven demand for the US Dollar, despite the prospect of slower rate cuts by the Federal Reserve.

Investors are now awaiting US economic data releases, including the ADP employment report, weekly jobless claims, and FOMC meeting minutes for further clues on the US economic outlook and potential trading opportunities.