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US stock indexes ended the trading session little changed on Wednesday, showing no clear direction as investors tried to make sense of conflicting economic signals: employment data and unexpected policy announcements.
The focus was on the impact of two pieces of news. On the one hand, the employment reports gave investors reason to be cautiously optimistic. On the other hand, the CNN report has sparked speculation about what President-elect Donald Trump might do, with the country reportedly considering declaring an economic emergency over inflation.
"Inflation is the biggest uncertainty in 2025. Many events could push it higher," said Charlie Ripley, chief strategist at Allianz Investment Management.
The minutes of the Fed's December 17-18 meeting confirmed that policymakers see increased risks of prolonged price pressures, highlighting the difficulty of stabilizing the economy as the new Trump administration promises dramatic policy changes.
Market volatility has also been fueled by news that Trump may invoke the International Economic Powers Act, a move that would allow the president to regulate imports during an economic crisis, which has sparked controversy among analysts and investors.
Against this backdrop, the yield on 10-year US Treasury bonds reached 4.73%, the highest since April 25. The figure subsequently fell slightly to 4.677%.
Investors continue to closely monitor political and economic news, which determine the mood in the market. All this highlights the difficulty of predicting the next steps of both regulators and the new US authorities.
Political uncertainty continues to keep US investors on edge. With Donald Trump's inauguration approaching, discussions about possible trade tariffs and their impact on the economy are causing growing anxiety in the markets.
The main cause of concern remains rumors about new tariffs that Trump may introduce to protect the US economy. These measures could have a significant impact on inflation and undermine the stability of global trade.
"An expansion of tariff policy, even in the short term, could increase inflationary pressures," warns Thomas Hayes, chairman of Great Hill Capital LLC. "The Federal Reserve will likely take a wait-and-see approach to assess how much of an impact tariffs will have on inflation and whether potential spending cuts could offset some of the impact."
Markets ended the day mixed. The Dow Jones Industrial Average (DJI) rose 106.84 points, or 0.25%, to 42,635.20. The S&P 500 (SPX) added 9.20 points, or 0.16%, to end the day at 5,918.23. But the Nasdaq Composite (IXIC) lost 10.80 points, or 0.06%, to 19,478.88.
Among the S&P 500 sectors, eight out of 11 advanced, led by Health Care (.SPXHC), which rose 0.53%, reflecting investor confidence in the resilience of the sector even amid uncertainty.
The Russell 2000 (RUT), which tracks small-cap, domestically focused companies, fell 0.52%, reflecting growing concerns that smaller businesses may be more vulnerable to potential economic shocks.
Investors continue to closely monitor policy statements and actions, assessing risks and opportunities in a changing landscape. How the new administration will handle inflation challenges and trade policy implementation remains an open question. Markets are likely to remain volatile in the coming weeks until the course of the new economic strategy becomes clearer.
Quantum-related stocks had a tough day. Rigetti Computing (RGTI.O) and IonQ (IONQ.N) shares fell more than 40%, while Quantum Computing (QUBT.O) lost 39%. The reason for this was a speech by Nvidia CEO Jensen Huang, who said that the mass adoption of quantum computers could be delayed by three decades.
Huang's comments sent shockwaves through investors, as they shattered optimism around the imminent adoption of quantum technologies. "It chills the market and makes you think about the real timeframe for these innovations," one analyst said.
Thursday is a national day of mourning in the United States following the death of former President Jimmy Carter. Stock markets will remain closed on the day, giving investors time to process the latest developments.
Wednesday was dominated by decliners outnumbering gainers by 1.21-to-1 on the NYSE and 1.98-to-1 on the Nasdaq.
The S&P 500 posted four new 52-week highs and 29 new lows, while the Nasdaq Composite posted 42 new highs and 116 new lows.
Total trading volume was 15.86 billion shares, well above the 20-day average of 12.29 billion.
Global bond markets saw a slowdown in price declines, easing some of the pressure on US equities and strengthening the US dollar. However, Japanese bond yields continued to rise, hitting multi-year highs.
Equity selling continued across Asia, with most indices lower early in trade, the dollar holding steady and oil prices softening slightly.
Market developments reflect heightened uncertainty around the outlook for new technologies and the global economy. Investors will be eagerly awaiting the markets' return from mourning to see where the market will head amid ongoing turbulence.
Bond markets show caution as yields stabilise after rally
The bond market, a proxy for global investor sentiment, saw yields moderately lower in key markets. After significant fluctuations, benchmark rates are showing signs of stabilization.
The yield on the US 10-year Treasury note, which hit an overnight high of 4.73%, the highest since April 2024, fell to 4.6749% in the latest trading session. The move signals a temporary easing of pressure on the US debt market.
The yield on the Japanese 10-year government bond started the day with a gain of 1 basis point, reaching 1.185%, the highest since May 2011. However, by the morning (02:02 GMT), the yield was flat, reflecting the resilient position of the Japanese debt market.
Australian 10-year government bonds also continued to follow the global trend. Yields peaked at 4.546% on Wednesday morning, the highest since late November, but soon retreated to 4.521%, only a small gain of 1 basis point from the previous close.
These bond market moves reflect investor caution amid ongoing economic challenges. Attention is focused on inflation risks, possible central bank actions and political developments that could impact long-term financial strategies.
Bond markets are expected to remain moderately volatile in the coming days as market participants assess new macroeconomic cues.
The global bond markets remain tense, with developments in the UK likely to be key to their stability. British government bonds, which have been in the spotlight due to an unexpected rise in yields, have raised concerns among analysts, who are hinting at a possible crisis of confidence in the country's economic resilience.
The UK 10-year bond yield has risen 20 basis points this week, sparking speculation about a repeat of 2022, when Liz Truss and Kwasi Kwartenga's 'mini-budget' sparked sharp volatility in the bond market.
"The market is once again recalling the dramatic scenes of autumn 2022," said Chris Weston, head of research at Pepperstone. "While the current circumstances are different, recent moves in UK bonds are worth keeping an eye on."
Weston was cautiously optimistic, however, stressing that the Bank of England is better prepared for any turbulence this time around.
Despite the bond jitters, sterling is showing resilience, holding at $1.23625 after slipping 0.9% on Wednesday. This could be due to market expectations that the UK central bank will continue to take measures to control the situation.
The US dollar index, which tracks the value of the US dollar against six major currencies, remains at 109, down slightly from a peak of 109.54 recorded a week earlier. This is close to the highest since November 2022, highlighting the dollar's status as a safe haven amid global uncertainty.
Movements in the UK debt market could have an impact on global financial stability. Investors are watching developments with caution, especially given the vulnerability of European markets and the continued strength of the dollar.
UK bond markets will be a gauge of market sentiment in the coming days, and the Bank of England's actions could be crucial to preventing a new wave of crisis.
Financial markets continue to react to robust US economic data, which is supporting the dollar and pushing up Treasury yields. Signs of high inflation and expectations of limited easing by the Federal Reserve have increased volatility in the markets.
The minutes of the Federal Reserve's December meeting, released yesterday, underscored economists' concerns about the potential impact of President-elect Donald Trump's policies. In particular, his proposals to impose tariffs and tighten immigration laws could increase inflationary pressure and make it more difficult to combat rising prices.
CNN's information that Trump is considering declaring an economic emergency to legalize the introduction of comprehensive tariffs has sparked active discussions. This measure could significantly affect international trade, adding instability to the global economy.
At the moment, markets are only pricing in one more 25 basis point rate cut by the Federal Reserve in 2025. The probability of a second cut is estimated at 60%, indicating that investors are subdued in their expectations for monetary policy.
The instability caused by US economic policy is reflected in global stock markets. Most Asian indices were lower early on Thursday, confirming investor nervousness.
The combination of domestic factors such as inflation and Trump's policies with global economic uncertainty creates a difficult backdrop for markets. Investors continue to monitor developments, especially further signals from the Fed and the actions of the new US administration.
The coming weeks are expected to be decisive for global market sentiment, depending on how drastic the economic and trade policy moves are.
Global Markets Continue to Slide as Stocks, Oil, and Gold Under Pressure
Asia-Pacific stock markets were mostly negative on Thursday amid a stronger dollar and ongoing economic uncertainty.
Japan's Nikkei (.N225) fell 0.7%, continuing a downward trend seen in recent days. Australia's ASX 200 (.AXJO) lost 0.6%, while Taiwan's (.TWII) stocks fell 0.2%.
In China, the picture was less clear-cut. Hong Kong's Hang Seng (.HSI) was little changed, while the mainland CSI 300 (.CSI300) fell 0.2%.
S&P 500 futures (.EScv1) fell 0.2%, despite a modest 0.2% gain in the benchmark S&P 500 (.SPX) in the previous session.
U.S. stock markets will be closed Thursday for a national day of mourning for former President Jimmy Carter. The trading session for Treasuries will also be shortened.
Investors are bracing for Friday's key nonfarm payrolls report, which will be a key gauge for analyzing the Federal Reserve's policy outlook.
Oil prices extended their second straight session of declines, weighed down by a stronger dollar and rising U.S. fuel inventories.
Gold, often seen as a safe haven asset, slipped 0.1% to near $2,658 an ounce, off its overnight high of $2,670.10, its first since Dec. 13.
Bitcoin, the leading cryptocurrency, remains stable at around $94,965 after falling 7% over the past two days.
Financial markets continue to react to mixed signals from the economy. Investors are focused on the upcoming US employment report, which could influence the Fed's next steps, as well as on the dynamics of oil and gold prices, which are under pressure due to the strengthening dollar and instability in commodity markets.
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