S&P 500 Posts a Record High on Tech Strength and AI Optimism

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.33%.  March E-mini S&P futures (ESH25) are up +0.55%, and March E-mini Nasdaq futures (NQH25) are up +1.24%. 

Stocks on Wednesday extended Tuesday's gains, with the S&P 500 climbing to a new record high and the Dow Jones Industrials and the Nasdaq 100 posting 5-week highs.  Strength in technology stocks led the overall market higher on Wednesday, with Netflix up more than +9% after reporting better-than-expected Q4 earnings results. Also, Oracle rose more than +6%, adding to Tuesday's +6% jump, after the company teamed up with Softbank Group and Open AI to form a $100 billion joint venture to fund artificial intelligence infrastructure.  The proposed increase in AI spending bolstered optimism in the sector and boosted AI infrastructure stocks, with ARM Holdings Plc closing up more than +15% and Nvidia and Microsoft closing up more than +4%.

Stocks also have carryover support from Monday when President Trump stopped short of imposing new tariffs on China and Europe during his first day in office.  However, Trump ordered his administration to address unfair trade practices globally and outlined plans to impose tariffs of 25% on Canadian and Mexican goods on February 1.  Late Tuesday, Trump also said he was considering a 10% tariff on all goods from China in retaliation for the flow of fentanyl from the country.

US MBA mortgage applications rose +0.1% in the week ended January 17, with the purchase mortgage sub-index up +0.6% and the refinancing mortgage sub-index down -2.9%.  The average 30-year fixed rate mortgage fell -7 bp to 7.02% from 7.09% in the prior week.

Wednesday's news showed that the US Dec leading indicators fell by 0.1% m/m, which was right on expectations.

Earnings season is in full swing as companies report Q4 earnings results.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings to grow 7.5% y/y 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 Wednesday settled mixed.  The Euro Stoxx 50 rallied to a 24-year high and closed up +0.77%.  China's Shanghai Composite Index fell to a 1-week low and closed down -0.89%.  Japan's Nikkei Stock 225 rose to a 1-1/2 week high and closed up +1.58%.

Interest Rates

March 10-year T-notes (ZNH25) Wednesday closed down -5.5 ticks.  The 10-year T-note yield rose +1.5 bp to 4.591%.  March T-notes Wednesday gave up an early advance and turned lower after the S&P 500 rallied to a new all-time high, which curbed safe-haven demand for T-notes.  Also, supply pressures weighed on T-notes as the Treasury auctioned $13 billion of 20-year T-bonds Wednesday.

T-notes recovered from their worst levels Wednesday as strong demand for the Treasury's $13 billion 20-year T-bond auction sparked short covering. The auction had a bid-to-cover ratio of 2.75, above the 10-auction average of 2.60.  T-notes were also supported by speculation that President Trump will take a more measured approach to tariffs, which calmed concerns his policies would increase inflation. 

European government bond yields Wednesday moved higher.  The 10-year German bund yield recovered from a 2-week low of 2.483% and finished up +2.0 bp to 2.530%.  The 10-year UK gilt yield recovered from a 2-1/2 week low of 4.565% and finished up +4.3 bp to 4.633%.

ECB President Lagarde said the ECB isn't lowering interest rates too slowly and will maintain its measured approach to easing monetary policy.

ECB Governing Council member Escriva said another 25 bp cut in interest rates by the ECB at next week's policy meeting is "very probable."

ECB Governing Council member Knot said market expectations for interest rate cuts by the ECB in January and March "are reasonable."

The Bundesbank's monthly report Wednesday said, "In the first quarter of 2025, the German economy is unlikely to emerge from its long period of stagnation."

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

Netflix (NFLX) closed up more than +9% to lead gainers in the S&P 500 after reporting Q4 EPS of $4.27, better than the consensus of $4.18, and reporting Q4 streaming paid membership of 301.63 million, stronger than the consensus of 290.93 million. 

Oracle (ORCL) closed up more than +6%, adding to Tuesday's +6% jump, as it will team up with Softbank Group and Open AI to form a $100 billion joint venture to fund artificial intelligence infrastructure. 

AI infrastructure stocks rallied Wednesday after President Trump announced a joint venture to fund AI infrastructure late Tuesday.  As a result, ARM Holdings Plc (ARM) closed up more than +15% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA) closed up more than +4% to lead gainers in the Dow Jones Industrials.  In addition, Microsoft (MSFT) closed up more than +4%. 

Seagate Technology Holdings Plc (STX) closed up more than +6% after reporting Q2 adjusted EPS of $2.03, better than the consensus of $1.87.

Teledyne Technologies (TDY) closed up more than +6% after reporting Q4 net sales of $1.50 billion, above the consensus of $1.45 billion.

TE Connectivity Plc (TEL) closed up more than +4% after reporting Q1 adjusted EPS of $1.95, better than the consensus of $1.89.

Procter & Gamble (PG) closed up more than +2% after reporting Q2 net sales of $21.88 billion, stronger than the consensus of $21.55 billion.

Travelers Cos (TRV) closed up more than +2% after reporting Q4 core EPS of $9.15, well above the consensus of $6.59.

Agilysys (AGYS) closed down more than -19% after cutting its 2025 revenue forecast to about $273 million from an October forecast of $280 million-$285 million.

Edison International (EIX) closed down more than -6% to lead losers in the S&P 500 after a California Superior Court judge ordered the company to produce data from the four circuits closest to where the Eaton wildfire started and to preserve all equipment in a square mile near the fire's origin.   

Fluence Energy (FLNC) closed down more than -7% after Jeffries downgraded the stock to hold from buy due to margin concerns.

Textron (TXT) closed down more than -3% after forecasting 2025 adjusted EPS of $6.00-$6.20, weaker than the consensus of $6.39. 

Johnson & Johnson (JNJ) closed down more than -2% to lead losers in the Dow Jones Industrials after reporting Q4 MedTech sales of $8.19 billion, weaker than the consensus of $8.23 billion.

Ford Motor (F) closed down more than -3% after Barclays downgraded the stock to equal weight from overweight. 

Fifth Third Bancorp (FITB) closed down more than -2% after reporting Q4 average deposits of $167.24 billion, below the consensus of $168.55 billion.

Reddit (RDDT) closed down more than -2% after Roth Capital Partners downgraded the stock to neutral from buy. 

Earnings Reports (1/23/2025)

CSX Corp (CSX), Elevance Health Inc (ELV), Freeport-McMoRan Inc (FCX), General Electric Co (GE), Intuitive Surgical Inc (ISRG), McCormick & Co Inc/MD (MKC), Northern Trust Corp (NTRS), Texas Instruments Inc (TXN), Union Pacific Corp (UNP).