Stocks Rally on US Economic Strength and US-China Trade Optimism

The S&P 500 Index ($SPX) (SPY) today is up +1.06%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.91%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.56%.  March E-mini S&P futures (ESH25) are up +1.05%, and March E-mini Nasdaq futures (NQH25) are up +1.59%. 

Stocks today are moderately higher, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 1-month high.  Lower T-note yields support stocks today as the 10-year T-note yield fell to a 2-week low of 4.566%.  Also, the strength in chip stocks is lifting the overall market. 

Today's US economic news was better than expected and bolsters optimism in the economy.  Dec housing starts rose +15.8% m/m to a 10-month high of 1.499 million, stronger than expectations of 1.327 million.  Also, Dec building permits, a proxy for future construction, fell -0.7% to 1.483 million, stronger than expectations of 1.460 million.  In addition, Dec manufacturing production rose +0.6% m/m, stronger than expectations of +0.2% m/m and the largest increase in 4 months.

US stocks also have carryover support from strength in European stocks as the Euro Stoxx 50 rallied to a 24-year high today.  Stocks also rose on a possible easing of US-China tensions after the Xinhua News Agency reported that Chinese President Xi Jinping had a telephone conversation today with President-elect Trump, in which Trump said, “The call was a very good one for both China and the U.S.A.” 

World equity markets are finding support today on signs of strength in China's economy, which improves global growth prospects.  China's Q4 GDP rose +5.4% y/y, stronger than expectations of +5.0% y/y and the fastest pace of expansion in six quarters.  Also, China's Dec industrial production rose +6.2% y/y, stronger than expectations of +5.4% y/y and the biggest increase in 8 months.

Today, the International Monetary Fund (IMF) raised its 2025 global GDP forecast to 3.3%, up from a 3.2% forecast in October, citing stronger US demand.

Hawkish comments today from Cleveland Fed President Hammack are negative for stocks when she said we still have an inflation problem, and the Fed can be "very patient" on further interest rate cuts.

The price of Bitcoin (^BTCUSD) is up more than +3% to a 1-month high on a Bloomberg report that said President-elect Trump plans to release an executive order making crypto a national priority and creating a crypto advisory council. 

Earnings season begins this week as companies start reporting Q4 earnings results.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings to grow 7.5% in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 1% 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 24-year high and is up +0.81%.  China's Shanghai Composite Index closed up +0.18%.  Japan's Nikkei Stock 225 fell to a 1-1/2 month low and closed down -0.31%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +2 ticks.  The 10-year T-note yield is down -0.8 bp to 4.605%.  Mar T-notes today rose to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 4.566%.  T-notes are climbing today on carryover support from rallies in European government bonds.  Also, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate fell to a 1-week low today at 2.405%.

Gains in T-notes are limited due to hawkish comments from Cleveland Fed President Hammack, who said the Fed could be "very patient" on further interest rate cuts.  Also, today's stronger-than-expected US economic reports on Dec housing starts and Dec manufacturing production are bearish for T-notes.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 1-week low of 2.506% and is down -3.3 bp to 2.514%.  The 10-year UK gilt yield dropped to a 1-1/2 week low of 4.611% and is down -4.8 bp to 4.631%.

ECB Governing Council member and Bundesbank President Nagel said, "We shouldn't be too hasty in our efforts to normalize monetary policy. Inflation is currently still elevated, and service prices in particular continue to rise dynamically."

The IMF today cut its Eurozone 2025 GDP estimate to 1.0% from an October forecast of 1.2%. 

UK Dec retail sales ex-auto fuel unexpectedly fell -0.6% m/m, weaker than expectations of +0.3% m/m.

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Chip stocks today are moving higher and supporting gains in the overall market.  GlobalFoundries (GFS) is up more than +5%.  Also, Marvell Technology (MRVL) is up more than +3%, and Nvidia (NVDA) is up more than +3% to lead gainers in the Dow Jones Industrials.  In addition, Broadcom (AVGO), Qualcomm (QCOM), Advanced Micro Devices (AMD), Microchip Technology (MCHP), ON Semiconductor (ON), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) are up more than +2%.

Cryptocurrency-related stocks are climbing today, with the price of Bitcoin (^BTCUSD) up more than +3% to a 1-month high on a Bloomberg report that said President-elect Trump plans to release an executive order making crypto a national priority and creating a crypto advisory council.  As a result, Coinbase Global (COIN), MicroStrategy (MSTR), MARA Holdings (MARA), and Riot Platforms (RIOT) are up more than +4%.   

Intel (INTC) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after a report from the website SemiAccurate said the company may be an acquisition target.

Qorvo (QRVO) is up more than +13% after the Wall Street Journal reported that Starboard Value has amassed a 7.7% stake in the company and plans to push for changes to boost its stock price. 

Lumentum Holdings (LITE) is up more than +5% after Barclays double-upgraded the stock to overweight from underweight with a price target of $125. 

Truist Financial Corp (TFC) is up more than +4% after reporting Q4 taxable equivalent net interest income of $3.64 billion, better than the consensus of $3.60 billion. 

Cloudflare (NET) is up more than +2% after Citigroup upgraded the stock to buy from neutral with a price target of $145.

Applied Materials (AMAT) is up more than +2% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $225.

Edison International (EIX) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $96. 

JB Hunt Transport Services (JBHT) is down more than -6% to lead losers in the S&P 500 after reporting Q4 EPS of $1.53, weaker than the consensus of $1.63. 

Crowdstrike Holdings (CRWD) is down more than -3% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CSO Henry sold $1.42 million shares on Wednesday. 

State Street (STT) is down more than -2% after it forecasted 2025 net interest income "roughly flat" at $2.92 billion, weaker than the consensus of an increase to $2.96 billion.

Vistra Corp (VST) is down more than -2% after a fire broke out at the Moss Landing Power Plant in California, where Vistra owns a battery storage system.

Regions Financial (RF) is down more than -1% after saying it expects Q1 net interest income to be down modestly from Q4.

HubSpot (HUBS) is down more than -1% after TD Cowen downgraded the stock to hold from buy. 

Spotify Technology (SPOT) is down more than -1% after Wolfe Research downgraded the stock to peer perform from outperform. 

Earnings Reports (1/17/2025)

Citizens Financial Group Inc (CFG), Fastenal Co (FAST), Huntington Bancshares Inc/OH (HBAN), Regions Financial Corp (RF), Schlumberger NV (SLB), State Street Corp (STT), Truist Financial Corp (TFC).