Stocks Finish Lower on Year-End Profit-Taking

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.87%.  March E-mini S&P futures (ESH25) are down -0.37%, and March E-mini Nasdaq futures (NQH25) are down -0.86%. 

Stocks on Tuesday shed early gains and settled moderately lower, with the S&P 500 and the Nasdaq 100 posting 1-week lows.   T-note yields gave up an early decline on Tuesday and pushed higher, which dragged chip stocks lower and weighed on the broader market.  On the positive side, energy stocks rallied after WTI crude oil climbed to an 8-week high. 

Stocks had some negative carryover from Tuesday’s -1% slide in China’s Shanghai Composite Stock Index to a 1-week low on slower-than-expected growth in Chinese manufacturing activity.  The China Dec manufacturing PMI fell -0.2 to 50.1, weaker than expectations of 50.2.

Tuesday’s economic news showed the Oct S&P CoreLogic US composite-20 home price index rose +0.3% m/m and +4.2% y/y, stronger than expectations of +0.2% m/m and +4.1% y/y.

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 on Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.55%.  China’s Shanghai Composite Index fell to a 1-week low and closed down -1.63%.  Japan’s Nikkei Stock 225 was closed for a bank holiday.

Interest Rates

March 10-year T-notes (ZNH25) Tuesday closed down -7 ticks.  The 10-year T-note yield rose +3.6 bp to 4.569%.  Mar T-notes Tuesday fell from a 1-week high and closed lower, and the 10-year T-note yield turned higher after posting a 1-week low of 4.503%.  Long liquidation emerged in T-notes Tuesday after crude oil prices rallied to an 8-week high, which boosted inflation expectations.  T-notes were also under pressure after the Oct S&P CoreLogic composite-20 home price index rose more than expected, a hawkish factor for Fed policy.

T-note prices Tuesday found early 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 Tuesday moved lower.  The 10-year German bund yield did not trade today, with markets in Germany closed for the New Year’s holiday.   The 10-year UK gilt yield fell to a 1-week low of 4.545% and finished down -4.3 bp to 4.568%.

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

Chip stocks on Tuesday were under pressure and weighed on the overall market.  ARM Holdings Plc (ARM) closed down more than -2%, and Nvidia (NVDA) closed down more than -2% to lead losers in the Dow Jones Industrials.  Also, Advanced Micro Devices (AMD) and Micron Technology (MU) closed down more than -1%.  In addition,  Marvell Technology (MRVL), GlobalFoundries (GFS), ON Semiconductor (ON), Broadcom (AVGO), Qualcomm (QCOM), and Applied Materials (AMAT) closed down more than -0.50%.

Tesla (TSLA) closed down more than -3% to lead losers in the S&P 500 after recalling 77,713 vehicles in China over software issues and potentially faulty driver airbags.

Vistra Corp (VST) closed down more than -1% on year-end profit taking and tax selling, with the stock up more than +260% this year.

GoDaddy (GDDY) closed down more than -1% after Bloomberg Intelligence said the company’s net additions continue to slow, putting pressure on average revenue per customer to drive growth.

Dave Inc (DAVE) closed down more than -6% after the Federal Trade Commission said it referred its federal court case against the company to the Justice Department for allegedly deceiving customers and hiding fees.

Energy stocks moved higher Tuesday after the price of WTI crude oil climbed to an 8-week high.  As a result, APA Corp (APA), ConocoPhillips (COP), Marathon Petroleum (MPC), Devon Energy (DVN), and Valero Energy (VLO) closed up more than +2%.  Also, Occidental Petroleum (OXY), Chevron (CVX), Diamondback Energy (FANG), Haliburton (HAL), Schlumberger (SLB), Exxon Mobil (XOM), and Phillips 66 (PSX) closed up more than +1%. 

Acadia Pharmaceuticals (ACAD) closed up more than +10% after S&P Dow Jones Indices said the stock will replace Independent Bank Group in the S&P SmallCap 600 before the opening of trading on Friday, January 3. 

FTAI Aviation (FTAI) closed up more than +14 after it said it is starting a strategic capital initiative and announced an initial guidance for 2025, which Citigroup said was “very encouraging.”

US Steel (X) closed up more than +9% after Nippon Steel offered to give the US government a veto over any reduction in US Steel’s production capacity in a proposal aimed at winning approval from President Biden for Nippon Steel’s proposed takeover of the company. 

VeriSign (VRSN) closed up more than +1% after an SEC filing showed Warren Buffet’s Berkshire Hathaway bought $15.6 million of the stock over the past three sessions.

Earnings Reports (1/2/2025)

Critical Metals Corp (CRML), Lifecore Biomedical Inc (LFCR), Resources Connection Inc (RGP).