Stocks Close Higher on Tech and Chip Strength

The S&P 500 Index ($SPX) (SPY) on Monday rose +0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed +0.93%.  March E-mini S&P futures (ESH25) rose +0.62%, and March E-mini Nasdaq futures (NQH25) rose +0.84%. 

Stocks on Monday rallied on strength in tech and chip stocks. Stocks were also boosted by the fact that Congress passed a stop-gap funding bill last Friday and averted a US government shutdown, which would have been negative for the US economy.  The stop-gap bill funded the government through mid-March 2025.

Stocks overcame early weakness tied to higher T-note yields and weaker-than-expected US economic reports. 

Monday's Nov US durable goods report was weaker than expected, although capital goods orders were a bit stronger than expected.  Nov US durable goods orders fell -1.1% m/m, weaker than expectations of -0.3%, although Oct was revised higher to +0.8% from +0.3%.  Nov durable goods orders ex-transportation fell -0.1%, weaker than expectations of +0.3%.  Nov capital goods orders ex defense and aircraft, a proxy for capital spending, rose +0.7% m/m, stronger than expectations of +0.1%.

Monday's Nov US new home sales report of +5.9% to 664,000 was weaker than expectations for an increase to 669,000.

Monday's Dec Conference Board US consumer confidence index of -8.1 to 104.7 was substantially weaker than expectations for an increase to 113.2. 

The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Last Friday's stop-gap bill did not contain the debt ceiling suspension that President-Elect Trump wanted, meaning that Republicans in the first half of 2025 will have to increase, suspend, or abolish the debt ceiling.  The debt ceiling will now be reinstated at midnight on January 2, 2025, at the then-current level of debt.  The Treasury will be able to use extraordinary measures to stay under the debt ceiling until the so-called “X-date” in spring or summer 2025, when the Treasury will begin to default on its obligations unless Congress takes action on the debt ceiling.

Overseas stock markets on Monday closed mixed.  The Euro Stoxx 50 on Monday closed down -0.19%, adding to the overall loss of -1.9% seen last Thursday and Friday.  China's Shanghai Composite Index closed -0.50%, the third consecutive session loss.  Japan's Nikkei Stock 225 closed up +1.19%, snapping the string of six consecutive session losses.

Interest Rates

March 10-year T-notes (ZNH25) on Monday fell by -13 ticks, consolidating mildly above last Thursday's 6-1/2 month low.  The 10-year T-note yield rose by +6.4 bp to 4.587%, and edged to a new 6-1/2 month high of 4.597%.  T-note prices traded lower after Congress last Friday averted a US government shutdown that would have been negative for the US economy.  T-note prices were also undercut by supply overhang as the Treasury on Monday sold $69 billion of 2-year T-notes.  The Treasury will sell $70 billion of 5-year T-notes on Tuesday and $44 billion of 7-year T-notes on Thursday.  T-note prices fell on Monday despite the weaker-than-expected US economic reports.

European government bond yields rose after ECB President Lagarde said that ECB members remain alert to lingering price pressures in the services sector but remain confident that the CPI is nearing the ECB’s target.

The 10-year German bund yield rose +3.8 bp to 2.323%.  The 10-year UK gilt yield rose +3.6 bp to 4.546.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and a 9% chance for a -50 bp rate cut at that meeting.

US Stock Movers

Several of the Magnificent 7 stocks showed strength Monday and helped to lead the broad market higher.  Tesla (TSLA) and Meta Platforms (META) showed gains of more than +2%, and Alphabet (GOOG) rose +1.54%.

Chip stocks were leaders in the Nasdaq 100 index on Monday, with GLOBAFOUNDARIES (GFS) and Broadcom  (AVGO) showing gains of more than +5%.  AMD (AMD) and Microchip Technology (MCHP) showed gains of more than +4%.

Qualcomm (QCOM) rallied +3.47% on Monday, and Arm Holdings Plc (ARM) fell by -3.85%, after Qualcomm won in court against Arm's claim of a chip technology license breach when Qualcomm bought a start-up in 2021. 

Xerox (XRX) rallied more than +12% after news that Xerox agreed to buy laser printer maker Lexmark International in a deal worth $1.5 billion.

Playa Hotels & Resorts (PLYA) rose by +28% after news of an exclusivity agreement with Hyatt Hotels Corp (H) to negotiate the possible acquisition of Playa, which owns or runs beachfront and all-inclusive resorts in Mexico, Jamaica, and the Dominican Republic.  Hyatt (H) closed the down by -1.13%.

Crypto-stocks traded lower due to the -2.7% sell-off in bitcoin (^BTCUSD).  Bitcoin fell sharply by an overall -10% last Wednesday and Thursday due to the hawkish outcome of last week's FOMC meeting and showed only a modest recovery of +0.14% last Friday.  Microstrategy (MSTR) fell by -8.8% on Monday, while Riot Platforms (RIOT) fell more than -5%.  Coinbase (COIN) fell more than -3%.

Earnings Reports (12/24/2024)

None.