Stocks Retreat as AI Infrastructure Companies and Chip Makers Fall

The S&P 500 Index ($SPX) (SPY) today is down by -0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -1.12%.  December E-mini S&P futures (ESZ25) are down -0.66%, and December E-mini Nasdaq futures (NQZ25) are down -1.15%.

Stock indexes are falling today, with the S&P 500 and Nasdaq 100 posting 3-week lows. Weakness in AI infrastructure stocks and chip makers is dragging the broader market lower and weighing on market sentiment.  Also, homebuilding stocks are lower, led by a -5% fall in Lennar after it reported Q4 EPS that were weaker than expected. 

On the positive side, energy producers are climbing, with WTI crude oil up by more than 1% after President Trump announced an oil blockade on tankers entering and leaving Venezuela.  Mining stocks are also moving higher as tensions in Venezuela escalate, boosting safe-haven demand for precious metals, with silver soaring to a new all-time high. 

Dovish comments today from Fed Governor Christopher Waller were supportive of stocks and bonds, as he said the US labor market is "pretty soft," with close to zero job growth, and that inflation is "pretty well anchored" around 2%.  He added that interest rates are still 50-100 basis points above neutral, and the Fed can steadily lower them with no rush.

US MBA weekly mortgage applications fell -3.8% in the week ended December 12, with the purchase mortgage sub-index down -2.8% and the refinancing mortgage sub-index down -3.6%.  The average 30-year fixed rate mortgage rose +5 bp to 6.38% from 6.33% in the prior week.

This week's market focus will be on US economic news.  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 down -0.24%.  China’s Shanghai Composite closed up +1.19%.  Japan’s Nikkei Stock 225 recovered from a 2-week low and closed up +0.26%.

Interest Rates

March 10-year T-notes (ZNH6) today are up by +1 tick.  The 10-year T-note yield is down -0.4 bp to 4.141%.  T-notes recovered from early losses today and are slightly higher due to dovish comments from Fed Governor Waller, who said the Fed can keep cutting rates as interest rates are still 50-100 bp above neutral.

T-notes initially moved lower today on negative carryover from a plunge in Japanese 10-year bonds to an 18-year low.  Also, supply pressures are weighing on T-note prices ahead of the Treasury’s $13 billion auction of 20-year T-bonds later today. 

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 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 mixed today.  The 10-year German bund yield rebounded from a 1-week low of 2.826% and is up +0.6 bp to 2.851%.  The 10-year UK gilt yield fell to a 1.5-week low of 4.446% and is down -6.2 bp to 4.456%.

Eurozone Nov CPI was revised downward to +2.1% y/y from the previously reported +2.2% y/y.

Eurozone Q3 labor costs eased to +3.3% y/y from +3.9% y/y in Q2, the smallest pace of increase in three years.

The German Dec IFO business conditions survey unexpectedly fell -0.4 to a 7-month low of 87.6 versus expectations of an increase to 88.2.

UK Nov CPI eased to +3.2% y/y from +3.6% y/y in Oct, better than expectations of +3.5% y/y and the slowest pace of increase in eight months.  Nov core CPI rose +3.2% y/y, weaker than expectations of +3.4% y/y and the slowest pace of increase in 11 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

AI infrastructure stocks and chip makers are sliding today and weighing on market sentiment.  GE Vernova (GEV) is down more than -6% to lead losers in the S&P 500, and Constellation Energy (CEG) is down more than -6% to lead losers in the Nasdaq 100.  Also, Broadcom (AVGO) and ASML Holding NV (ASML) are down more than -4%.  In addition, Lam Research (LRCX), Nvidia (NVDA), and Advanced Micro Devices (AMD) are down more than -3%.  Finally, Palantir Technologies (PLTR), ARM Holdings Plc (ARM), KLA Corp (KLAC), Applied Materials (AMAT), Intel (INTC), and Micron Technology (MU) are down more than -2%.  

Homebuilding stocks are lower today, led by a -5% fall in Lennar (LEN) after it forecast Q1 new orders of 18,000 to 19,000, below the consensus of 20,297.  Also, DR Horton (DHI) is down more than -2%, and PulteGroup (PHM) is down more than -1%.

Energy producers and energy service providers are climbing today, with WTI crude oil up by more than 1%.  Devon Energy (DVN) is up more than +3%, and ConocoPhillips (COP) is up more than +2%.  Also, APA Corp (APA), Halliburton (HAL), Occidental Petroleum (OXY), Diamondback Energy (FANG), Chevron (CVX), and Exxon Mobil (XOM) are up more than +1%. 

Oracle (ORCL) is down more than -5% after the Financial Times reported that Blue Owl Capital will not back a $10 billion deal for Oracle’s next data center. 

Paramount Skydance (PSKY) is down more than -4% to lead losers in the S&P 500 as Warner Bros. Discovery plans to reject Paramount Skydance’s takeover bid due to concerns about financing and other terms. 

Worthington Enterprises (WOR) is down more than -4% after reporting Q2 adjusted EPS of 65 cents, weaker than the consensus of 70 cents. 

Brown-Forman Corp (BF.B) is down more than -4% after Citigroup downgraded the stock to sell from neutral with a price target of $27.

Bally’s Corp (BALY) is down more than -3% after Barclays downgraded the stock to underweight from equal weight with a price target of $11.

Progressive Corp (PGR) is down more than 2% after reporting that November net premiums written fell 12% m/m.

Fortinet (FTNT) is down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $75.

Texas Pacific Land Corp (TPL) is up more than +7% to lead gainers in the S&P 500 after announcing a strategic agreement with Bolt Data & Energy to develop large-scale data center campuses across TPL’s West Texas land holdings. 

Albemarle (ALB) is up more than +4% to lead lithium producers higher as lithium prices continue to rise with expected demand growth.

Lumentum Holdings (LITE) is up more than +3% after Morgan Stanley raised its price target on the stock to $304 from $190. 

Salesforce (CRM) is up more than +2% to lead gainers in the Dow Jones Industrials after BTIG initiated coverage on the stock with a recommendation of buy and a price target of $335.

General Mills (GIS) is up more than +2% after reporting Q2 net sales of $4.86 billion, above the consensus of $4.79 billion.

Netflix (NFLX) is up more than +1% as Warner Bros. Discovery plans to reject Paramount Skydance’s takeover bid due to concerns about financing and other terms. 

Earnings Reports(12/17/2025)

General Mills Inc (GIS), Jabil Inc (JBL), Micron Technology Inc (MU), Toro Co/The (TTC).