Stocks Settle Higher on Chip Stock Strength and Positive Economic News

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.00%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.78%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.66%.  March E-mini S&P futures (ESH25) are up +0.91%, and March E-mini Nasdaq futures (NQH25) are up +1.56%. 

Stocks rallied Friday, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 1-month high.  Strength in chip stocks boosted the overall market. Also, Friday's US economic news was better than expected and bolstered 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.  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 had carryover support from strength in European stocks as the Euro Stoxx 50 rallied to a 24-year high on Friday.  In addition, stocks rose on a possible easing of US-China tensions after Chinese President Xi Jinping had a telephone conversation Friday 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 found support Friday 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.

Also supporting stocks was Friday's action by the International Monetary Fund (IMF) to raise its 2025 global GDP forecast to 3.3% from a 3.2% forecast in October, citing stronger US demand.

Hawkish comments Friday from Cleveland Fed President Hammack were 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) surged more than +4% to a 1-month high Friday 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 began this week as companies reported 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 on Friday settled mixed.  The Euro Stoxx 50 rallied to a 24-year high and closed 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) Friday fell -2 ticks.  The 10-year T-note yield rose +0.5 bp to 4.611%.  Mar T-notes fell from a 2-week high and closed slightly lower, and the 10-year T-note yield rose from a 2-week low of 4.566%.  T-notes gave up their gains Friday on the stronger-than-expected US economic reports on Dec housing starts and Dec manufacturing production.  Also, hawkish comments from Cleveland Fed President Hammack weighed on T-notes when he said the Fed could be "very patient" on further interest rate cuts.

T-notes Friday initially moved higher 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 Friday at 2.405%.

European government bond yields on Friday moved lower.  The 10-year German bund yield fell to a 1-week low of 2.506% and finished down -1.2 bp to 2.535%.  The 10-year UK gilt yield dropped to a 1-1/2 week low of 4.611% and finished down -2.0 bp to 4.660%.

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 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 rallied on Friday and supported gains in the overall market. Marvell Technology (MRVL) closed up more than +6%, and GlobalFoundries (GFS) closed up more than +4%.  Also, Broadcom (AVGO) and  Microchip Technology (MCHP) closed up more than +3%, and Nvidia (NVDA) closed up more than +3% to lead gainers in the Dow Jones Industrials.  In addition, Micron Technology (MU), Qualcomm (QCOM), Advanced Micro Devices (AMD), ON Semiconductor (ON), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) closed up more than +2%.

Cryptocurrency-related stocks rose Friday after the price of Bitcoin (^BTCUSD) jumped more than +4% 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) closed up more than +4%.   

Intel (INTC) closed up more than +9% 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) closed up more than +14% 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. 

Schlumberger NV (SLB) closed up more than +6% after reporting Q4 adjusted Ebitda of $2.38 billion, better than the consensus of $2.36 billion, and boosted its quarterly dividend by +1 cent to 28.5 cents a share.

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

Truist Financial Corp (TFC) closed up more than +5% after reporting Q4 taxable equivalent net interest income of $3.64 billion, better than the consensus of $3.60 billion. 

Applied Materials (AMAT) closed up more than +3% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $225.

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

JB Hunt Transport Services (JBHT) closed down more than -7% to lead losers in the S&P 500 after reporting Q4 EPS of $1.53, weaker than the consensus of $1.63. 

Walgreens Boots Alliance (WBA) closed down more than -3% after the US Justice Department said it is suing the company for allegedly dispensing millions of unlawful prescriptions in violation of the Controlled Substances Act and then seeking reimbursement.

State Street (STT) closed 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) closed down more than -1% after a fire broke out at the Moss Landing Power Plant in California, where Vistra owns a battery storage system.

Crowdstrike Holdings (CRWD) closed down more than -1% 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. 

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

General Motors (GM) closed down more than -1% after the US National Highway Traffic Safety Administration opened a preliminary evaluation over concerns that 870,000 of the company's full-size pickup trucks and SIVs face the risk of engine failure. 

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

Earnings Reports (1/21/2025)

3M Co (MMM), Capital One Financial Corp (COF), Charles Schwab Corp/The (SCHW), DR Horton Inc (DHI), Fifth Third Bancorp (FITB), KeyCorp (KEY), Netflix Inc (NFLX), Prologis Inc (PLD), Seagate Technology Holdings PL (STX), United Airlines Holdings Inc (UAL).