Broader Market Settles Higher as Chip Stocks Rally

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.55%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.09%.  March E-mini S&P futures (ESH25) are up +0.61%, and March E-mini Nasdaq futures (NQH25) are up +1.22%. 

Stocks on Monday settled mixed, with the S&P 500 and Nasdaq 100 posting 1-week highs.  The strength of chip makers supported gains in the broader market.  Nvidia closed up more than +3% after its Taiwanese partner, Hon Hai Precision Industry Co., reported stronger-than-expected revenue growth. Also, Microsoft closed up nearly +1% after announcing plans to spend $80 billion on data centers and raise its 2025 capex spending. 

Stocks also garnered support Monday 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 were 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 Monday, “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.”

Monday’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 Monday settled mixed.  The Euro Stoxx 50 rallied to a 3-week high and closed up +2.36%.  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) Monday closed down -3.5 ticks.  The 10-year T-note yield rose +1.4 bp to 4.612%.  Mar T-notes Monday fell to a 1-week low, and the 10-year T-note yield rose to an 8-month high of 4.642%.  T-notes were under pressure Monday 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 weighed on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week.  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.  T-notes recovered from their worst levels on Monday on decent demand for the Treasury’s $58 billion auction of 3-year T-notes with a bid-to-cover ratio of 2.62, better than the 10-auction average of 2.57.

European government bond yields Monday moved higher.  The 10-year German bund yield climbed to a 2-month high of 2.469% and finished up +2.1 bp to 2.447%.  The 10-year UK gilt yield rose +1.8 bp to 4.610%.

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 rallied Monday 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) closed up more than +10% to lead gainers in the S&P 500.  Also, ASML Holding NV (ASML) closed up more than +7%, and KLA Corp (KLAC) closed up more than +5%.  In addition, ARM Holdings Plc (ARM), Applied Materials (AMAT), and Lam Research (LRCX) closed up more than +4%.   In addition, Nvidia (NVDA) closed up more than +3% to lead gainers in the Dow Jones Industrials, and Advanced Micro Devices (AMD) and NXP Semiconductors NV (NXPI) closed up more than +2%.   

MicroStrategy (MSTR) closed up more than +11% to lead gainers in the Nasdaq 100 after the price of Bitcoin (^BTCUSD) rose more than +4% to a 2-week high, and the company announced that it purchased 1,070 Bitcoin last Monday and Tuesday.

Teradyne (TER) closed up more than +7% after Northland Securities upgraded the stock to outperform from market perform with a price target of $154.

US Steel (X) closed up more than +7% 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.

Vertiv Holdings (VRT) closed up more than +6% after Morgan Stanley initiated coverage on the stock with a recommendation of overweight and a price target of $150. 

Stellantis NV (STLA) closed up more than +3% 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. 

American Airlines Group (AAL) closed up more than +2% 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.

Uber Technologies (UBER) closed 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.

Palantir Technologies (PLTR) closed down more than -4% after Morgan Stanley assumed coverage on the stock with an underweight recommendation and a price target of $60.

Essex Property Trust (ESS) closed down more than -4% after Mizuho Securities cut its price target on the stock to $300 from $325.

T-Mobile US (TMUS) closed down more than -3% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Paychex (PAYX) closed down more than -3% after Bloomberg reported the company is in advanced talks to acquire smaller rival Paycor HCM Inc.

UDR Inc (UDR) closed down more than -3% after forecasting 2025 adjusted FFO per share of $2.48, below the consensus of $2,53.

CME Group (CME) closed down more than -3% after Citigroup downgraded the stock to neutral from buy. 

Paychex (PAYX) closed down more than -3% after Bloomberg reported the company is in advanced talks to acquire smaller rival Paycor HCM Inc.

Palo Alto Networks (PANW) closed down more than -2% after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $130. 

Earnings Reports (1/7/2025)

AAR Corp (AIR), Apogee Enterprises Inc (APOG), AZZ Inc (AZZ), Cal-Maine Foods Inc (CALM), Kura Sushi USA Inc (KRUS), Lindsay Corp (LNN), PACS Group Inc (PACS), Richardson Electronics Ltd/Uni (RELL), RPM International Inc (RPM), Simulations Plus Inc (SLP).