By Johann M Cherian, Sukriti Gupta and Carolina Mandl
(Reuters) -U.S. stocks tumbled on Tuesday after a batch of upbeat economic data raised concerns that an inflation rebound could slow down the Federal Reserve's pace of monetary policy easing.
Stocks gave up early gains after a Labor Department report showed job openings unexpectedly increased in November, while a separate report said services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high.
"Markets are starting to recognize that they thought we were in the eighth inning of the inflation fight but now it's going to be higher for longer," said Joe Mazzola, head of trading and derivatives strategist at Charles Schwab (NYSE:SCHW).
Benchmark 10-year Treasury yields hit 4.699% after the data pointed to a strong economy, the highest since April 26.
"Both of those things potentially have inflationary impacts and, as a result, yields have increased," said Mike Dickson, head of research at Horizon Investments, referring to the economic data. "That's definitely weighing on stocks."
Signs of continued resilience in the economy have pushed back expectations on when the central bank can deliver its first interest rate reduction this year. Traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025, according to the CME Group's (NASDAQ:CME) FedWatch tool.
Concerns over the impact of possible tariffs by the incoming Trump administration on consumer prices have also been on investors' minds. "A mix of solid growth and a new wave of inflationary pressure from tariffs means the Fed will likely switch from cutting interest rates at every decision ... to pausing in between rate cuts in 2025," Bill Adams, chief economist for Comerica (NYSE:CMA) Bank, said in a note.
The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36, the S&P 500 lost 66.35 points, or 1.11%, to 5,909.03 and the Nasdaq Composite lost 375.30 points, or 1.89%, to 19,489.68.
Higher yields pushed technology-sector stocks lower by 2.39%. Shares of AI bellwether Nvidia (NASDAQ:NVDA) fell 6.22%.
Most of the 11 S&P 500 sectors declined, except for healthcare and energy stocks.
The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed's December meeting.
In the previous session, the S&P 500 and the Nasdaq closed short of one-week highs on uncertainty after President-elect Donald Trump denied a report that his team was exploring less aggressive tariff policies.
Tesla (NASDAQ:TSLA) shares fell 4% after BofA Global Research downgraded the stock to "neutral" from "buy."
Micron Technology (NASDAQ:MU) rose 2.67% after Nvidia boss Jensen Huang said the chipmaker was providing memory for the AI bellwether's GeForce RTX 50 Blackwell family of gaming chips.
Citigroup (NYSE:C) rose 1.29% on bullish coverage from Truist Securities, while Bank of America went up 1.5% after positive ratings from at least three brokerages. Some big banks are expected to report quarterly earnings in the next week.
Declining issues outnumbered advancers by a 2.14-to-1 ratio on both the NYSE and the Nasdaq.
The S&P 500 posted 9 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 60 new highs and 58 new lows.
Volume on U.S. exchanges was 20.45 billion shares, compared with the 12.52 billion average for the full session over the last 20 trading days.
Markets will be closed on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.