Strength in Chip Stocks Boosts the Overall Market

The S&P 500 Index ($SPX) (SPY) is up +1.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.64%.  March E-mini S&P futures (ESH25) are up +1.14%, and March E-mini Nasdaq futures (NQH25) are up +1.68%. 

Stocks are climbing today, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting 1-week highs.  The strength of chip makers is leading the overall market higher. Nvidia is up more than +4% after its Taiwanese partner Hon Hai Precision Industry Co reported stronger-than-expected revenue growth.  Also, Microsoft is up more than +1% after announcing plans to spend $80 billion on data centers and raise its 2025 capex spending. 

Stocks also garnered support today from a Washington Post report that said President-elect Trump’s aides are weighing universal tariff plans that would cover only critical imports.  If implemented, such a plan would disrupt global trade less than expected and reduce the inflationary impact of the tariffs.

On the negative side of stocks are hawkish Fed comments.  On Saturday, San Francisco Fed President Daly said despite significant progress in lowering price pressures over the past two years, inflation remains “uncomfortably above our target.” Also, Fed Governor Kugler said, “US inflation is not at 2% yet, so we’re definitely aiming still to get there, and we know the job is not done.”  In addition, Fed Governor Cook said today, “Since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time.  Thus, we can afford to proceed more cautiously with further interest rate cuts.”

Today’s US economic news was mixed for stocks.  The Dec S&P services PMI was revised downward by -1.7 to 56.8 from the previously reported 58.5.  Also, Nov factory orders fell -0.4% m/m, weaker than expectations of -0.3% m/m, although Oct factory orders were revised upward to +0.5% m/m from the originally reported +0.2% m/m.

The markets are awaiting this week’s economic reports to gauge the strength of the US economy.  On Tuesday, the Dec ISM services index is expected to climb +1.4 to 53.5.  On Wednesday, the December 17-18 FOMC meeting minutes will be scrutinized to see if the Fed will continue to cut interest rates.   Finally, Friday’s monthly US payroll report will assess the strength of the US labor market (Dec nonfarm payrolls expected +160,000 and the Dec unemployment rate expected to remain steady at 4.2%).

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

Overseas stock markets today are mixed.  The Euro Stoxx 50 rallied to a 3-week high and is up +1.81%.  China’s Shanghai Composite Index fell to a 2-1/2 month low and closed down -0.14%.  Japan’s Nikkei Stock 225 closed down -1.47%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -9 ticks.  The 10-year T-note yield is up +3.7 bp to 4.634%.  Mar T-notes today fell to a 1-week low, and the 10-year T-note yield rose to an 8-month high of 4.642%.  T-notes are under pressure today due to carryover weakness in German bund prices after the 10-year German bund yield climbed to a 2-month high on a stronger-than-expected German Dec CPI report.  Also, supply pressures are weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with today’s $58 billion auction of 3-year T-notes.  In addition, hawkish comments from Fed Governors Cook and Kugler and San Francisco Fed President Daly weighed on T-notes. 

T-notes found some support after the Washington Post reported that President-elect Trump’s aides are exploring tariff plans that would only cover critical imports, which would pare back the most sweeping elements of Trump’s campaign plans and ease concern the tariff plans would boost inflation. 

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 2-month high of 2.469% and is up +3.5 bp to 2.461%.  The 10-year UK gilt yield is up +3.0 bp to 4.623%.

The Eurozone Jan Sentix investor confidence index fell -0.2 to a 14-month low of -17.7, slightly stronger than expectations of -17.9. 

The Eurozone Dec S&P composite PMI was revised upward by +0.1 to 49.6 from the previously reported 49.5.

German Dec CPI (EU harmonized) rose +0.7% m/m and +2.9% y/y, stronger than expectations of +0.5% m/m and +2.6% y/y with the +2.9% y/y gain the strongest year-on-year increase in 11 months.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Chip makers are climbing today after Nvidia’s assembly partner Hon Hai Precision Industry Co (Foxconn), reported stronger-than-expected revenue growth on strong demand for AI infrastructure.  As a result, Micron Technology (MU) is up more than +10% to lead gainers in the S&P 500 and Nasdaq 100.  Also, ASML Holding NV (ASML) is up more than +6%, and Lam Research (LRCX) is up more than +5%.   In addition, Nvidia (NVDA) is up more than +4% to lead gainers in the Dow Jones Industrials, and ARM Holdings Plc (ARM), Applied Materials (AMAT), and KLA Corp (KLAC) are up more than +4%.  Finally, Marvell Technology (MRVL) and GlobalFoundries are up more than +3%, and Advanced Micro Devices (AMD), Microchip Technology (MCHP), and Qualcomm (QCOM) are up more than +2%.   

Teradyne (TER) is up more than +5% after Northland Securities upgraded the stock to outperform from market perform with a price target of $154.

American Airlines Group (AAL) is up more than +3% after TD Cowen upgraded the stock to buy from hold with a price target of $25, and Jeffries upgraded the stock to buy from hold with a price target of $20. 

Stellantis NV (STLA) is up more than +4% and rallied with other European automakers after the Washington Post reported that President-elect Trump’s aides are exploring tariffs that would pare back plans from his presidential campaign. 

Vertiv Holdings (VRT) is up more than +5% after Morgan Stanley initiated coverage on the stock with a recommendation of overweight and a price target of $150. 

US Steel (X) is up more than +3% after it jointly filed lawsuits with Nippon Steel in a last-ditch effort to preserve the planned merger of the companies, which was blocked last week by President Biden.

Uber Technologies (UBER) is up more than +2% after announcing it entered into an accelerated share repurchase agreement with Bank of America to repurchase $1.5 billion of Uber stock as part of its previously announced $7 billion share repurchase authorization.

Moderna (MRNA) is up more than +1% after the CDC reported that seasonal flu activity continues to increase across the US. 

T-Mobile US (TMUS) is down more than -4% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Hamilton Lane (HLNE) is down more than -4% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $139.

CME Group (CME) is down more than -2% after Citigroup downgraded the stock to neutral from buy. 

Palantir Technologies (PLTR) is down more than -1% after Morgan Stanley assumed coverage on the stock with an underweight recommendation and a price target of $60.

Palo Alto Networks (PANW) is down more than -1% after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $130. 

Paychex (PAYX) is down more than -1% after Bloomberg reported the company is in advanced talks to acquire smaller rival Paycor HCM Inc.

Earnings Reports (1/6/2025)

Commercial Metals Co (CMC).