Stocks Retreat as Tech Stocks Slump

The S&P 500 Index ($SPX) (SPY) today is down -1.46%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.64%.  March E-mini S&P futures (ESH25) are down -1.40%, and March E-mini Nasdaq futures (NQH25) are down -1.56%. 

Stocks today are sharply lower, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting 1-week lows.  Weakness in megacap technology stocks is dragging the broader market lower.  Also, today’s selloff in chip stocks is weighing on the overall market.  In addition, Boeing is down more than -3% after a 737-800 Boeing aircraft crashed at Muan International Airport in South Korea. Finally, year-end profit-taking in equity markets is weighing on stock prices, with Tuesday being the last trading day of 2024.  On the positive side, energy stocks are finding support from today’s rally in WTI crude oil to a 2-week high. 

Today’s US economic news was mixed for stocks.  On the negative side, the Dec MNI Chicago PMI unexpectedly fell -3.3 to a 7-month low of 36.9, weaker than expectations of an increase to 43.0.  Conversely, Nov pending home sales rose +2.2% m/m, stronger than expectations of +0.8% m/m. Also, the Dec Dallas Fed manufacturing outlook survey unexpectedly rose +5.1 to a 2-3/4 year high of 3.4, stronger than expectations of a decline to -3.0.

Low volumes and thin trading conditions during this holiday week may lead to exaggerated stock moves, with most global equity markets closed Wednesday for the New Year's holiday.  The markets are awaiting Friday’s US Dec ISM manufacturing index for market direction and to gauge the health of the US manufacturing sector.  Expectations are for the Dec ISM Manufacturing Index to slip -0.2 to 48.2.   

The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell from a 1-week high and is down -0.69%.  China’s Shanghai Composite Index closed up +0.21%.  Japan’s Nikkei Stock 225 closed down -0.96%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +15 ticks.  The 10-year T-note yield is down -7.5 bp to 4.551%.  Mar T-notes today climbed to a 1-week high and are moderately higher as the slump in equity markets has sparked some safe-haven demand for T-notes. T-notes extended their gains today after the Dec MNI Chicago PMI unexpectedly contracted by the most in 7 months, a dovish factor for Fed policy.

T-note prices are also seeing some support from month-end rebalancing as bond fund managers buy longer-term government debt to balance their portfolios, with Bloomberg estimating the duration of bond indexes will extend by an estimated 0.07 of a year this month. 

European government bond yields today are moving lower.  The 10-year German bund yield fell from a 6-week high of 2.404% and is down -3.9 bp to 2.357%.  The 10-year UK gilt yield fell from a 1-week high of 4.646% and is down -2.8 bp to 4.605%.

Spain's Dec CPI (EU harmonized) rose +2.8% y/y, stronger than expectations of +2.6% y/y and the largest increase in 5 months.  Also, Dec core CPI rose +2.6% y/y, stronger than expectations of +2.4% y/y.

ECB Governing Council member Holzmann said, "It could be the case that we take more time before lowering interest rates again" if inflation risks from energy prices or a stronger depreciation of the euro materialize.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and at 12% for a -50 bp rate cut at that meeting.

US Stock Movers

Mega-cap technology stocks are under pressure today and are weighing on the broader market.  Tesla (TSLA) is down more than -3%, and Meta Platforms (META) is down more than -2%.  Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), and Apple (AAPL) are down more than -1%. 

Weakness in chip stocks today is a drag on the overall market.  Micron Technology (MU), Broadcom (AVGO), GlobalFoundries (GFS), and ON Semiconductor (ON) are down more than -3%.  Also, Marvell Technology (MRVL), Applied Materials (AMAT), ASML Holding NV (ASML), Microchip Technology (MCHP), Lam Research (LRCX), NXP Semiconductors NV (NXPI), Intel (INTC), Analog Devices (ADI), are down more than -2%.  In addition, Advanced Micro Devices (AMD), KLA Corp (KLAC), Qualcomm (QCOM), and Texas Instruments (TXN) are down more than -1%.

Boeing (BA) is down more than -3% to lead losers and Dow Jones Industrials after a 737-800 Boeing aircraft crashed at Muan International Airport in South Korea. 

Axsome Therapeutics (AXSM) is down more than -12% after announcing an advanced-2 Phase 3 trial for its AXS-05 Alzheimer’s disease treatment did not demonstrate statistical significance for the primary endpoint.   

MicroStrategy (MSTR) is down more than -6% to lead losers in the S&P 500 and Nasdaq 100, with the price of Bitcoin down more than -3% after the company said it bought $209 million of Bitcoin last week.

Energy stocks are finding support from today’s rally in WTI crude oil to a 2-week high.  Coterra Energy (CTRA) is up more than +3%, and Devon Energy (DVN) is up more than +2%.  Also, Diamondback Energy (FANG) is up +0.75% to lead gainers in the Nasdaq 100.

V2X Inc (VVX) is up +0.52% after being awarded a $170 million five-year contract to continue supporting the Drug Enforcement Administration’s (DEA) fleet of over 100 aircraft.

Earnings Reports (12/30/2024)

Gencor Industries Inc (GENC) and Renovaro Inc (RENB).