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U.S. stocks fell Tuesday in a sharp sell-off as declines across major indices spread to a level that echoed bear market selloffs, based on stronger-than-expected economic data that set off concern the Federal Reserve could increase interest rates from their near zero level this year. The S&P 500 fell 1.13% to close at 5,909.03; the Dow Jones Industrial Average dropped 0.42% or 178.2 points to end at 42,528.3. The steepest decline was in the Nasdaq, which fell 1.89 points, or 1.5%, to close at 19,489.6.
The downturn came after data from the Institute for Supply Management indicated faster-than-expected growth in the U.S. services sector in December. Tossing more fuel on the fears that the Federal Reserve could sit tight on the rate cut trigger, the report raised alarms about lingering inflation pressures.
The spike in bond yields came, with the 10-year Treasury yield rising more than seven basis points to 4.693%. Its intraday high came earlier in the day, at 4.699%, the highest level since April.
The economic data is prompting a recalculation of inflation expectations, triggering a small sell-off in equities off an earlier rally, said Tom Hainlin, senior investment strategist at U.S. Bank Asset Management Group. The drop in the stocks remained rather buoyant amid robust data suggesting robust consumer and labour markets, which should underpin long-term economic growth and ultimate corporate earnings potential, said Hainlin.
The price movement also stemmed from investors taking profits from megacap tech and semiconductor stocks after a run of gains.
This article first appeared on GuruFocus.