Renewed inflation worries jolt markets

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Inflation fears drag down US markets
US stocks fell and Treasury yields rose on Tuesday as the ISM services index shows a big jump in prices for December. Asia-Pacific markets mixed trading on Wednesday. South Korea’s Kospi rose 1.3%. It was pushed by the shares of Samsung Electronics, which rose around 3.6% even when the company. forecast whose fourth-quarter profits came in lower than LSEG’s expectations.

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In a sign of how investors are currently concerned about the return of inflation, the Supply Management Institute Services Indexan inflation reading typically secondary to more significant data points like the consumer price index, is sending shock waves through the market.

The price index for the December ISM report jumped to 64.4% from 58.2% in November, representing an increase of more than 10%. It is the first time since January 2024, the reading has reached above 60%, noted Steve Miller, president of the ISM Business Survey Committee.

That could just be the start of an unwanted upward trend. Miller attributes part of the expansion in service activity to “risk management for impacts from port shocks and potential tariffs” – both of which generate inflationary pressures.

In response, investors have pushed to the 10-year Treasury yield to 4.699% during the US trading day, the highest level since April 26. They also cut their expectations for a rate of 25 basis points at the January meeting of the Federal Reserve of the United States, pricing in a probability of 4.8% of what will happen, from a rate. 8.6% chance just a day ago, second CME Group’s FedWatch tool

Stocks suffered. U S&P 500 down 1.11%, the Dow Jones Industrial Average decreased 0.42% and the Nasdaq Composite slid 1.89%, dragged by a fall in tech stocks. Nvidia slumped 6.2%, snapping its three-day winning streak.

“You’re getting a recalibration of inflation expectations and Fed rate expectations. This has triggered this small selloff in equity markets after the earlier enthusiasm,” said Tom Hainlin, senior strategist at investment in the US Bank Asset Management Group.

But the strong ISM report also suggests the U.S. economy is still doing well, providing fertile ground for profit growth, Hainlin said. And as David Lefkowitz, chief CIO of US equities for UBS, wrote in a note on Monday, “profit growth matters more” than the valuation for returns in the next 12 months.

A data point from an inflation measure does not plot the path of inflation or corporate health for the year ahead. But it pays to proceed with caution for now.

— CNBC’s Jeff Cox, Sean Conlon, Pia Singh and Lisa Kailai Han contributed to this report.