Stocks Turn Lower on AI Spending Concerns

The S&P 500 Index ($SPX) (SPY) today is down by -0.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.26%.  December E-mini S&P futures (ESZ25) are down -0.18%, and December E-mini Nasdaq futures (NQZ25) are down -0.30%.

Stock indexes erased early gains today and turned lower, with the S&P 500 falling to a 2-week low and the Nasdaq 100 sliding to a 2.5-week low.  Stocks extended last Friday’s losses today on concerns over artificial intelligence spending.  Broadcom is down more than -3%, and Oracle is down more than -2% to lead AI-infrastructure stocks lower as last week’s disappointing outlooks from Oracle and Broadcom have prompted some investors to rotate out of the tech sector amid lofty valuations and uncertainty over whether vast spending on AI infrastructure will ultimately pay off.  Also, energy stocks are falling after crude prices dropped to a 1.75-month low, and cryptocurrency-exposed stocks are sliding with Bitcoin down more than -4% to a 2-week low.

The outlook for lower interest rates and easier Fed policy is supportive for stocks, with the 10-year T-note yield down -2 bp today to 4.17%. Also, this week’s US economic news on employment and prices is expected to be Fed-friendly and supportive for stocks. 

Dovish Fed comments today are supportive for stocks.  Fed Governor Stephen Miran said the Fed's policy stance is unnecessarily restrictive for the economy, citing a benign inflation outlook and labor-market warning signs.  Also, NY Fed President John Williams said, "The FOMC has moved the modestly restrictive stance of monetary policy toward neutral," amid increased employment risks and somewhat reduced inflation risks.

Today’s US economic news was mixed for stocks.  The Dec Empire manufacturing survey of general business conditions unexpectedly contracted -22.6 points to -3.9, weaker than expectations of 10.0.  Also, the Dec NAHB housing market index rose +1 to an 8-month high of 39, right on expectations.

Weaker-than-expected Chinese economic news is negative for global growth prospects.  China's Nov industrial production unexpectedly eased to +4.8% y/y from +4.9% y/y in Oct, versus expectations of an increase to +5.0% y/y.  Also, China's Nov retail sales rose +1.3% y/y, weaker than expectations of +2.9% y/y and the smallest pace of increase in 2.75 years. In addition, China's new home prices fell 0.39% m/m, marking the 30th consecutive month of declines.

This week's market focus will be on US economic news.  On Tuesday, Nov nonfarm payrolls are expected to increase by +50,000, and the Nov unemployment rate is expected to be at 4.5%. Meanwhile, Nov average hourly earnings are expected to rise by +0.3% m/m and +3.6% y/y.  Also, on Tuesday, Oct retail sales are expected to be up +0.1% m/m, and Oct retail sales ex-autos are expected to be up +0.2% m/m.  Finally, on Tuesday, the Dec S&P manufacturing PMI is expected to decline by -0.2 to 52.0.  On Thursday, weekly initial unemployment claims are expected to fall -11,000 to 225,000.  Also, Nov CPI is expected to be +3.1% y/y, and Nov core CPI is expected to be +3.0% y/y. On Friday, Nov existing home sales are expected to be up +1.2% m/m to 4.15 million.  Also, the University of Michigan Dec consumer sentiment index is expected to be revised upward by +0.2 to 53.5 from the previously reported 53.3.

The markets are discounting a 24% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on January 27-28.

Overseas stock markets are mixed today.  The Euro Stoxx 50 is up +0.56%.  China’s Shanghai Composite closed down -0.55%.  Japan’s Nikkei Stock 225 closed down -1.31%.

Interest Rates

March 10-year T-notes (ZNH6) today are up by +7 ticks.  The 10-year T-note yield is down -1.4 bp to 4.170%.  T-notes are climbing today after the Dec Empire manufacturing survey of general business conditions unexpectedly contracted, a dovish factor for Fed policy. T-notes also have support from dovish comments by Fed Governor Stephen Miran, who said the Fed's policy stance is unnecessarily restrictive for the economy.   T-notes fell back from their best level after the Dec NAHB housing market index rose to an 8-month high.

The steepening yield curve is bearish for T-note prices. Steepening trades occur when bond investors buy short-term government debt and sell long -term debt.  The yield curve has steepened since last Wednesday’s FOMC meeting, when the Fed said it would begin purchasing up to $40 billion of short-term T-bills a month, starting today, to boost liquidity in the financial system.  Longer-term Treasury securities are also under pressure from concerns about inflation and the Fed’s independence. 

European government bond yields are moving lower today.  The 10-year German bund yield is down -0.5 bp to 2.852%. The 10-year UK gilt yield is down -2.2 bp to 4.494%.

Eurozone Oct industrial production rose +0.8% m/m, right on expectations and the biggest increase in 5 months.

Swaps are discounting a 0% chance for a -25 bp rate cut by the ECB at its next policy meeting on Thursday.

US Stock Movers

KLA Corp (KLAC) is up more than +3% to lead chip makers higher after Jeffries upgraded the stock to buy from hold with a price target of $1,500.  Also, Lam Research (LRCX) is up more than +2%.  In addition, Applied Materials (AMAT), Micron Technology (MU), NXP Semiconductors NV (NXPI), and Nvidia (NVDA) are up more than +1%.

Cryptocurrency-exposed stocks are tumbling today with Bitcoin (^BTCUSD) down more than -4% to a 2-week low. Riot Platforms (RIOT) is down more than -7%, and Galaxy Digital Holdings (GLXY) is down more than -6%.  Also, Strategy (MSTR) and Mara Holdings (MARA) are down more than -5%, and Coinbase Global (COIN) is down more than -3%.

Energy producers and energy service providers are sliding today with WTI crude oil down more than -1% to a 1.75-month low.  APA Corp (APA), Devon Energy (DVN), and Occidental Petroleum (OXY) are down more than -2%.  Also, ConocoPhillips (COP), Diamondback Energy (FANG), Exxon Mobil (XOM), and Phillips 66 (PSX) are down more than -1%. 

ServiceNow (NOW) is down more than -10% to lead losers in the S&P 500 after KeyBanc Capital Markets downgraded the stock to underweight from sector weight with a price target of $775.

LyondellBasell Industries NV (LYB) is down more than -4% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $36.

Builders FirstSource (BLDR) is down more than -4% after Jeffries downgraded the stock to hold from buy.

ARM Holdings Plc (ARM) is down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $120.

Entegris Inc. (ENTG) is down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $75.

Adobe (ADBE) is down more than -1% after KeyBanc Capital Markets downgraded the stock to underweight from sector weight with a price target of $310.

Immunome (IMNM) is up more than +20% after announcing positive results from a Phase 3 trial of its Varegacestat in patients with desmoid tumors. 

ZIM Integrated Shipping Services (ZIM) is up more than +5% after Calcalist reported that MSC has submitted a bid to purchase the company. 

Doximity (DOCS) is up by more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight, with a price target of $65. 

Akam Technologies (AKAM) is up more than +1% after KeyBanc Capital Markets double-upgraded the stock to overweight from underweight with a price target of $115.

Corebridge Financial (CRBG) is up more than +1% after S&P Dow Jones Indices said the stock will replace Allete Inc in the S&P MidCap 400 effective before the open of trading on Wednesday, December 17. 

Charles River Laboratories (CRL) is up more than +1% after JPMorgan Chase raised its price target on the stock to $190 from $165.   

Earnings Reports(12/15/2025)

Dakota Gold Corp (DC), Lifezone Metals Ltd (LZM), Lionsgate Studios Corp (LION), Triller Group Inc (ILLR).