Wall Street, US yields tumble amid growth, Trump uncertainty; euro gains

Audio By Carbonatix

Enlarge

By Alden Bentley and Amanda Cooper

NEW YORK/LONDON (Reuters) – Major Wall Street indexes were lower on Tuesday, with the tech-heavy Nasdaq hitting a 6-week low, as Treasury yields tumbled on signs of softening U.S. growth and uncertainty over Trump administration policies.

Germany’s election result buoyed the euro, and European shares closed up.

Oil prices fell about 3% on worries over U.S. tariffs.

Nervousness about Nvidia’s fourth quarter results after the market close on Wednesday hung over the market. Friday’s Personal Consumption Expenditures price index release, which the Federal Reserve tracks for its mandate to control inflation, was also in focus.

The S&P 500 fell 22.15 points, or 0.37%, to 5,961.19 and the Nasdaq Composite fell 225.96 points, or 1.17%, to 19,060.97 by 2:39 p.m. ET (1939 GMT).

Investors were briefly rattled by an order from U.S. President Donald Trump to limit Chinese investments in strategic U.S. sectors such as chips, AI and aerospace.

“Stock markets are like magnifying mirrors, reflecting a hyper-detailed view of a society’s priorities as they change, and investors are always looking for even the smallest differences as a sign of investable catalysts. This phenomenon favors non-US stocks at present,” said Nicholas Colas, Co-founder of DataTrek Research, in a note.

U.S. single-family house prices increased in December, another blow to affordability alongside elevated mortgage costs, even as the housing supply increases.

A weak read on U.S. consumer confidence added to the negative mood.

“Bearish growth sentiment – from last Friday’s weak PMIs, perhaps, or geopolitical jitters – is bound to linger until something substantive convinces investors otherwise,” FHN Financial macro strategist Will Compernolle said in a note on Tuesday. He added that Treasury coupon auctions on Tuesday and Wednesday could test the durability of the rally, at least until the release of Friday’s January PCE inflation report.

The Dow Jones Industrial Average rose 150.19 points, or 0.35%, to 43,611.40.

The 10-year yield was down 8.3 basis points at 4.31% while the 2-year note yield, which typically moves in step with interest rate expectations for the Fed, fell 6.4 basis points.

European shares closed up 0.2% on Tuesday, after gains in banks and healthcare companies offset declines in technology stocks.

The soft U.S. economic data pressured the dollar index, which measures the greenback against a basket of currencies.

The euro is one of the worst-performing major currencies against the dollar, given its high exposure to the risk of tariffs.

Trump’s planned duties on U.S. imports risk pushing up domestic inflation, while his mass firings of government employees could impact the labor market, just when the Federal Reserve needs room to cut interest rates.

Tension between the U.S. and Europe has also risen over Ukraine and how to broker a ceasefire agreement with Russia, three years after Moscow’s full-blown invasion of its neighbour.

Sentiment in the markets is fragile but there has been little in the way of volatility, according to Chris Beauchamp, chief strategist at IG.

“This is a sharp contrast to the past couple of years where crises seem to come one at a time and then, you could just deal with them when they occurred, and now it seems to be ‘everything, everywhere, all at once’,” he said.

REASONS FOR OPTIMISM?

CBOE’s VIX volatility index rose to its highest in a month on Tuesday, but so far has fallen short of the peak from late January.

Beauchamp said there are reasons to be optimistic.

“If you look at earnings season, it’s gone really well. But of course, the headlines and the signs of fracture between Europe and the U.S. – it doesn’t directly affect … stocks, but it just makes sentiment all the more febrile.”

Meanwhile, negative surprises in U.S. economic data have accelerated this month, led by unwelcome pickups in things like consumer inflation expectations and, most recently, by a drop in overall business activity.

The futures market shows traders expect the Fed to cut rates by around 50 basis points this year, up from 40 bps a week ago.

Treasury Secretary Scott Bessent argued on Tuesday that the U.S. economy is more fragile under the surface than economic metrics suggest, citing interest rate volatility, sticky inflation and job growth focused on the government sector.

Since China’s low-cost AI model from DeepSeek burst onto the scene in late January, investors have begun to question whether the hefty spending on this technology is justified and a lot will be riding on Nvidia’s fourth-quarter earnings.

Chinese retail investors have poured into AI-linked stocks on the domestic market this month, sending the Hong Kong equity index to three-year highs.

In commodities, U.S. crude fell 2.42% to $68.99 a barrel. Brent oil futures dropped 2.29% to $73.07 per barrel.

Gold dropped to its lowest level in over a week. Spot gold was down 1.42% to $2,909.22 an ounce. U.S. gold futures settled 1.5% lower at $2,918.80. Gold hit its highest level at $2,956.15 on Monday. [GOL/]

Bitcoin pared losses after falling below $87,000, as traders continued to process last week’s hack of $1.5 billion worth of ether from crypto exchange Bybit. (This story has been corrected to fix the reference to record prices in gold, not in crude oil; to amend the trading symbol for Hong Kong index in paragraph 27; and to rectify the spelling of the strategist’s name ‘Will Compernolle’ in paragraph 10)

(Additional reporting by Chris Prentice in New York, Stella Qiu in Sydney; Editing by Mark Heinrich and Nick Zieminski)