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Stocks were undercut Tuesday by rising market rates that were fueled by the better than expected December ISM Services PMI and November JOLTS - Jobs reports. The major indices finished near their lows for the day as the 10-yr note yield climbed to its highest level since April.
The 10-yr note yield hasn't shown signs today of backing down in a meaningful way. It is currently up one basis point to 4.69% (it hit 4.73% earlier) even though the December ADP Employment Change Report conveyed a softening in hiring activity and the weekly initial and continuing jobless claims report conveyed a pickup in continuing claims.
Briefly, ADP reported private sector employment increased by 122,000 jobs in December (Briefing.com consensus 131,000) with the goods-producing sector adding 10,000 jobs and the service-providing sector adding 112,000 jobs. The West region (+82,000) saw the biggest gain in jobs while large establishments (+97,000) accounted for the most new jobs. It was noted that the 4.6% year-over-year pay growth for job stayers was the slowest pace since July 2021.
The weekly initial and continuing jobless claims report was moved up a day because government offices will be closed Thursday for President Carter's memorial.
What was reported today is that initial jobless claims -- a leading indicator -- decreased by 10,000 to 201,000 (Briefing.com consensus 218,000) for the week ending January 4, which is the lowest print since January 2024. Continuing jobless claims for the week ending December 27 increased by 33,000 to 1.867 million.
The key takeaway from the report is that layoff activity is low, but for employees that lose their job it has become more challenging to find a new one.
The Treasury market is presumably focused more on the leading indicator as it also frets about the possibility of sticky/increasing inflation with new tariffs expected to be enacted. On a related note, CNN is reporting that President-elect Trump is considering declaring a national economic emergency so he will have full authority to impose tariffs.
Whatever the case may be, the higher market rates are creating a headwind for a stock market many would describe at least as having a full valuation.
Mega-cap stocks were left twisting in the wind yesterday as a result and succumbed to some selling interest that helped drive the indices lower. They are on the softer side again this morning. That is contributing to what is likely to be a relatively soft start for the the major indices, which will be contending later with the $22 billion 30-yr bond auction results at 1:00 p.m. ET and the release of the FOMC Minutes for the December meeting at 2:00 p.m. ET.
Quantum stocks, meanwhile, are contending with some hefty selling activity after NVIDIA (NVDA) CEO Jensen Huang said, according to Bloomberg, it will be 15 years before there will be useful quantum computers. Gaming stocks for their part are contending with a Q4 revenue and adjusted EBITDA warning from Flutter Entertainment (FLUT) that it blamed on "very unfavorable U.S. results."
Currently, the S&P 500 futures are up two points and are trading in-line with fair value, the Nasdaq 100 futures are up eight points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are up 24 points and are trading fractionally above fair value. The CBOE Volatility Index, meanwhile, is up 5.1% to 18.73.
