S&P 500, Dow, Nasdaq fall as traders pare rate cut bets after new economic data

Yahoo Finance’s Jennifer Schonberger reports:

The surprise departure of Federal Reserve vice chair for supervision Michael Barr is focusing new attention on Michelle Bowman, named by analysts as the person most likely to become the Fed’s new top banking cop.

The conservative Fed governor and former state banking commissioner of Kansas “seems like the likely choice,” Stifel chief Washington policy strategist Brian Gardner said in a note Monday.

Bowman “is the logical candidate,” added TD Cowen’s Jaret Seiberg in a separate note.

What helps Bowman’s chances, according to analysts, is that there currently is no empty seat on the Fed’s board of governors for Trump to fill with an outsider. Barr said he will remain as a Fed governor until his term is up in 2032.

So Trump either has to leave the Fed vice chair for supervision position empty until Fed governor Adriana Kugler’s term expires Jan. 31, 2026, or nominate an existing Fed governor to the post. Bowman would fit that qualification.

Bowman, if selected, could take the regulation of the nation’s largest banks in a new direction.

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Meta shares fell nearly 2% on Tuesday after CEO Mark Zuckerberg announced an end to the company’s third-party fact-checking program.

Originally designed to curb misinformation, the program will now be replaced by a user-driven model similar to X’s Community Notes.

“We are going to get back to our roots and focus on reducing mistakes, simplifying our policies, and restoring free expression on our platforms,” Zuckerberg said in a video posted by the company. “Fact-checkers have just been too politically biased and have destroyed more trust than they have created, especially in the US.”

“We’ve reached a point where it’s just too many mistakes and too much censorship.”

As Yahoo Finance’s Hamza Shaban reports, the move highlights intersecting shifts in media, technology, and politics as the Biden era comes to an end. Meta is responding to competition from X as popular platforms continue to shun traditional media and as tech industry executives attempt to win favor under a second Trump administration.

Shares of AI software firm Palantir Technologies fell more than 6% after Morgan Stanley reinstated coverage of the company with an Underweight rating.

Morgan Stanley analyst Sanjit Singh set his 12-month price target for the stock at $60, implying shares could drop another 15% on top of Tuesday’s decline.

Even with Tuesday’s drop Palantir shares have rallied over 340% over the past year, fueled by a broader boom in artificial intelligence and the US government’s growing interest in AI war technologies. The stock was added to the S&P 500 in September.

Its most recent quarterly earnings surpassed expectations thanks to higher-than-anticipated spending from the US government on its AI tech.

Palantir is led by oft-controversial CEO Alex Karp and was co-founded by conservative tech mogul Peter Thiel. The firm has at times faced backlash for its partnerships with government agencies, including Immigration and Customs Enforcement (ICE) and the Israeli Defense Force (IDF).

Bitcoin (BTC-USD) dropped below the critical $100,000 mark on Tuesday, echoing broader market losses as better-than-expected economic data sparked fears of an inflation resurgence.

In mid-afternoon trade, the largest cryptocurrency traded around $97,000 a token after prices on Monday topped $100,000 for the first time since Dec. 19.

Smaller cryptocurrencies like ethereum (ETH-USD) dropped 7% to trade above $3,400 a coin.

Vaccine makers’ stocks rose Tuesday following the first reported bird flu death in the US as well as an uptick in COVID-19 cases, per CDC data.

Moderna (MRNA) surged nearly 12%. Moderna in July 2024 was awarded $176 million from the US government to advance the development of its mRNA H5N1 (bird flu) vaccine, which is in early stages of testing.

Pfizer (PFE) is also developing an mRNA vaccine for H5N1. Shares of the company rose a more modest 1.4% midday Tuesday. Its partner on a COVID-19 vaccine, BioNTech (BNTX), rose over 5%.

Meanwhile, German biotech firm CureVac (CVAC) rose 5.9%. CureVac is developing an mRNA bird flu shot in collaboration with Indian pharma giant GlaxoSmithKline (GLAXO.BO), which was up a little more than 1%.

Also amid the COVID-19 uptick, vaccine maker Novavax (NVAX) rose over 10%.

The US dollar (DX=F, DX-Y.NYB) pushed higher on Tuesday, rebounding after the currency was on track for a one-week low following reports President-elect Donald Trump won’t commit to an aggressive tariff plan.

“The dollar has swung to a gain today after the ISM services (54.1) and job openings (8.1M) strongly beat expectations in December, leading markets to roll back their expectations for Federal Reserve easing this year to only 33 basis points,” Kyle Chapman, FX markets analyst at Ballinger Group, wrote in an email.

“There are two main points leading the dollar higher. The first is a rebound in labor demand reflected in the strong rise in job openings, and the second is the strongest ISM prices paid index since February 2023,” he said.

Prices paid in the services sector jumped to a nearly two-year high, suggesting the inflation fight is not yet finished. Following the data’s release, traders scaled back rate cut bets, placing a less than 50% chance the central bank cuts rates ahead of its June meeting, per the CME FedWatch Tool.

“It is certainly too early to call a reacceleration in inflation from this round of data, and markets will take the bigger clues from non-farms on Friday,” Chapman said. “With the market now firmly biased towards only a single rate cut this year, for me the room is only growing for a pullback in the overstretched hawkish repricing of the Fed path.”

President-elect Donald Trump announced a new multibillion-dollar foreign investment to build new data centers across the United States as interest and exploration of artificial intelligence intensifies.

Trump revealed on Tuesday that Damac Group, based in Dubai and backed by billionaire developer Hussain Sajwani, will invest $20 billion into the build-out.

“They feel so strongly about the country that they want to let people know about it,” the president-elect said during a press briefing at Mar-a-Lago. “It’s an honor to have such a great investor.”

Trump said the investment will be used to create “massive new data centers” across the Midwest and Sunbelt regions “and keep America on the cutting edge of technology and artificial intelligence.”

The project’s first phase will begin in a handful of states, including Texas, Arizona, Oklahoma, Michigan, and Indiana, among others.

Prices paid in the services sector during December shot higher, casting concern over the path forward for inflation.

Data from the Institute of Supply Management showed the prices paid index jumped to a reading of 64.4 in December, up from 58.2 the month prior. Broadly, activity in the sector also increased with the ISM services index rising to 54.1 in December from 53.5 in November.

“The surge in the prices paid index to a nearly two-year high of 64.4, from 58.2, is a worry for the Fed as it is consistent with PCE supercore inflation remaining at 3.5% until the middle of next year,” Capital Economics North America economist Thomas Ryan wrote in a note to clients on Tuesday. “This serves as a good reminder that the Fed’s fight against inflation is not over, particularly going into a year where tariffs and immigration curbs are set to reignite price pressures.”

The 10-year Treasury yield (^TNX) quickly moved higher after the release, adding roughly 7 basis points to hover just below 4.7%. And bets on when the Federal Reserve will next cut interest rates were pushed back too.

Traders now see a less than 50% chance the Fed cuts rates before the central bank’s June meeting, per the CME FedWatch Tool. Yesterday, traders saw a roughly 55% chance the Fed will have cut interest rates by at least 25 basis points by the end of its May meeting.

Markets sold off as rates chugged higher. The Nasdaq Composite (^IXIC), which opened the day in the green, was down about 1%. Meanwhile, the S&P 500 (^GSPC), which had also been positive earlier in the session, fell about 0.4%

Job openings rose more than expected in November as investors continue to dissect the pace of the labor market slowdown amid questions over how much further the Federal Reserve will slash interest rates this year.

New data from the Bureau of Labor Statistics released Tuesday showed that 8.1 million jobs were open at the end of November, an increase from the 7.84 million in October.

The October figure was revised higher from the 7.74 million open jobs initially reported. Economists surveyed by Bloomberg had expected Tuesday’s report to show 7.74 million openings in November

The Job Openings and Labor Turnover Survey (JOLTS) also showed 5.27 million hires were made during the month, down from the 5.39 million made during October. The hiring rate fell to 3.3% from 3.4% in October. Also in Tuesday’s report, the quits rate, a sign of confidence among workers, fell to 1.9% from 2.1% in October. Total quits decreased to 3.07 million from 3.28 million in October.

US stocks edged higher on Tuesday, with Nvidia (NVDA) once again lifting market sentiment.

The benchmark S&P 500 (^GSPC) inched up 0.3%, holding near tech-fueled prior-session gains. The Dow Jones Industrial Average (^DJI) also rose 0.3%, while those on the tech-heavy Nasdaq Composite (^IXIC) added around 0.2%.

Nvidia (NVDA) stock rose as much as 2.5% in premarket trading following CEO Jensen Huang’s keynote at the tech industry’s annual CES trade show in Las Vegas late Monday.

Huang’s presentation gave a flurry of updates on upcoming Nvidia products that preview what’s next in the burgeoning artificial intelligence market and other emerging technologies.

Nvidia shares closed at a record high of $149.43 Monday ahead of Huang’s keynote — eclipsing its prior record close of $148.88 reached back on Nov. 7.

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