U.S. Stocks Fall as Bond Yields Rise and Economic Concerns Intensify

U.S. stocks dropped on Monday, with the S&P 500 hitting a two-month low, as bond yields surged following strong payroll numbers from last week. The uptick in bond yields fueled expectations that the Federal Reserve will continue its hawkish approach for much of 2025.
At 09:50 a.m., the Dow Jones Industrial Average gained 105.06 points (0.25%), reaching 42,043.51, while the S&P 500 fell 40.79 points (0.70%) to 5,786.25. The Nasdaq Composite lost 274.13 points (1.43%) to 18,887.50. Wall Street’s fear gauge, the CBOE Volatility Index (VIX), rose by 1.60 points, hitting its highest level in over three weeks.
The Russell 2000, which tracks smaller companies, declined by 1% to its lowest level since September 2024, extending Friday’s losses. The index had fallen more than 10% from its November peak, officially entering correction territory.
Treasury Yields Surge as Fed Tightens Stance
The rally in bond yields continued, with longer-dated Treasury yields reaching multi-month highs. Traders adjusted their expectations for future interest rate cuts, with the probability of even a single Fed rate cut this year diminishing. According to data from LSEG, market bets now reflect a 27 basis point easing by the Fed’s December meeting, a sharp contrast to earlier expectations for a larger cut.
Art Hogan, chief market strategist at B Riley Wealth, noted, “In the early stages of recalibrating monetary policy, investors tend to take a bit of a risk-off attitude. But positive economic data is likely to be a net positive for corporate earnings and markets in the long run.”
Technology and Healthcare Lead the Declines
Technology stocks led the losses, with the sector dropping 1.8%. Major tech giants suffered heavy losses, with Tesla falling 2%, Apple dropping 2.7%, and Alphabet losing 1.5%. Chipmakers also faced headwinds, with Nvidia declining 3.3% and Advanced Micro Devices falling 1%, following new U.S. restrictions on AI chip exports.
Moderna saw a dramatic 22% decline after the company lowered its 2025 sales forecast by $1 billion. In contrast, healthcare stocks performed well, with UnitedHealth Group up 3.6%, CVS Health rising 4.1%, and Humana climbing 5.9%. These gains came after the U.S. government proposed a 2.2% increase in reimbursement rates for Medicare Advantage plans.
Inflation Concerns and Trade Fears Linger
Markets are also grappling with inflation concerns, driven by better-than-expected economic activity. Investors are increasingly concerned that inflation may remain high, prompting the Fed to maintain its tight monetary policy. Additionally, there are growing worries that the incoming Trump administration’s trade policies, including tariffs and immigration restrictions, could disrupt global trade and further fuel inflationary pressures.
Looking Ahead: Key Economic Reports
The market’s focus will turn to several key economic reports this week. The Consumer Price Index (CPI) and the Federal Reserve’s Beige Book, both due on Wednesday, are expected to provide further insight into the Fed’s policy outlook.
As earnings season continues, major financial institutions like JPMorgan Chase & Co and Wells Fargo are set to report their quarterly results on Wednesday, offering further clues on the health of the economy and corporate profits.
Market Breadth Weakens
Declining stocks outnumbered advancers by a ratio of 1.96-to-1 on the NYSE and 2.57-to-1 on the Nasdaq. The S&P 500 saw one new 52-week high and 22 new lows, while the Nasdaq recorded 11 new highs and 149 new lows. These figures highlight the prevailing negative sentiment in the market as investors grapple with economic uncertainty and tightening monetary conditions.