US stocks extend fall after sell-off sparked by strong services data

US equities ticked lower on Tuesday after a drop in the previous day, when traders took hotter than expected US services data as a signal for further interest rate rises from the Federal Reserve.

The S&P 500 index slipped 0.3 per cent in early trading, with the Nasdaq Composite down 0.4 per cent. Both benchmarks on Monday endured their largest daily declines since early November following a report from the Institute for Supply Management showing that its index, which tracks economic activity in the services sector, expanded for the 30th month in a row in December, rising to 56.5 from 54.4 in November.

The unexpectedly strong figure was interpreted by investors as a sign that the Fed may yet have to keep the world’s most important interest rate higher for longer in an attempt to cool the US economy. A cycle of rate rises has increased the federal funds rate to a target range of 3.75 per cent to 4 per cent from zero at the start of the year.

“The latest ISM data underline the divergences evident in the US economy as spending continues to shift from goods to services,” said our researcher, pointing to November’s contraction in the US manufacturing sector.

“While inflation has likely peaked, price pressures in the services sector are proving slow to abate,” he added, noting that “good economic news” lowered the chances of a so-called Fed pivot around inflation expectations.