On midday Tuesday, US equity indexes experienced a downturn as government bond yields dropped and investors assessed a significantly larger-than-expected decline in producer price inflation. Notably, the Nasdaq composite, primarily influenced by technology stocks, fell by 0.4% to 19,015.3. The S&P 500 followed with a slight decrease of 0.2%, settling at 5,824.4, while the Dow Jones Industrial Average remained virtually unchanged, dipping less than 0.1% to 42,288.7.
Notably, healthcare and communication services emerged as sectors leading the decline, whereas utilities and materials demonstrated relative strength among intraday gainers. According to the US Producer Price Index, there was a modest increase of 0.2% in December, which marked a slower pace compared to the 0.4% jump seen in November and fell short of the 0.4% gain that analysts had anticipated based on a survey provided by Bloomberg.
When considering only core prices, which exclude food and energy, the core PPI remained unchanged, failing to meet the expected growth of 0.3%, although it did show a slight rise from the previous month’s 0.2% increase. In terms of annual performance, PPI recorded an increase of 3.3% year-over-year in December, up from a 3% growth in November, while core PPI showed steadiness at 3.5% over the same yearly basis. In bond markets, most US Treasury yields experienced declines, with the two-year rate decreasing by 1.8 basis points to 4.38%, retracting from its peak since late July.
The 10-year yield remained relatively stable at 4.81% after reaching an intraday 52-week high the previous day. A Bloomberg report indicated that President-elect Donald Trump’s economic team is considering a “gradual approach” to tariff increases, potentially alleviating concerns surrounding the inflationary implications of Republican economic policies. The increased yields in the US are affecting equity valuations, with large-cap US stocks (excluding the Magnificent-7 group) reverting to the levels observed at the time of the September interest rate cuts, as noted in a Tuesday commentary from UBS.
Furthermore, from a broader economic perspective, the Redbook report noted that US same-store sales increased by 4% year-over-year for the week ending January 11, a deceleration compared to the 6.8% growth reported in the prior week. The Philadelphia Federal Reserve’s non-manufacturing index for December saw an upward revision to minus 3.4, improving from the previously stated minus six and a negative six in November, as per annual revisions released on Tuesday. In the commodities market, West Texas Intermediate crude oil futures dropped by 1.3%, settling at $77.77 a barrel, stepping back from its highest level since mid-August. In company-specific news, Eli Lilly reported on Tuesday that its Q4 revenue is estimated to be around $13.5 billion.
Analysts surveyed by FactSet had a higher expectation, forecasting $13.93 billion. This led to a notable decline in Eli Lilly's shares, which fell 7.1% intraday, marking it as the worst-performing stock within the S&P 500. Meanwhile, United Rentals announced its agreement to purchase H&E Equipment Services in an all-cash transaction valued at approximately $4.8 billion, including around $1.4 billion in debt, as part of its strategy to bolster its operational capacity in the US. As for the commodity markets, gold futures ticked up by 0.2%, reaching $2,682.50 per ounce, and silver futures saw a modest increase of 0.3%, priced at $30.39 per ounce..