The US stock market presented a mixed performance on Monday, with the Nasdaq experiencing a decline as investors sold off tech stocks. This sell-off was driven by the anticipation of fewer or no Federal Reserve rate cuts this year, following the release of strong jobs data on Friday, which indicated a robust economy.
Table Content:
Rate Hike Speculation Impacts Market Sentiment
Economists at Bank of America have revised their outlook, eliminating rate cut predictions and now considering a rate hike as the more probable next move by the Federal Reserve. Their analysis suggests that with inflation exceeding targets and the labor market exhibiting strength, the rationale for further rate cuts has diminished. They see the risks skewed more towards a hike than a cut.
This shift in expectations impacted the benchmark S&P 500, which briefly reached a two-month low as bond yields surged. This surge reflects the belief that the Fed will maintain higher interest rates for a longer duration this year. Despite the initial dip, the S&P 500 recovered to close up 0.16% at 5,836.22, and the Dow Jones Industrial Average gained 0.9%, closing at 42,297. In contrast, the tech-heavy Nasdaq Composite index ended the day down 0.38% at 19,088.10, likely due to tech companies’ higher reliance on borrowing for growth, which could be hindered by increased rates. The 10-year Treasury yield reached its highest level since late 2023, closing at 4.79%.
Chip Stock Decline Following Proposed Export Curbs
Chip manufacturer Nvidia experienced a decline following the Biden administration’s proposal of new restrictions on US chip exports. This proposal aims to hinder China’s progress in artificial intelligence and safeguard national security by limiting the export of advanced AI chips to specific countries. While eighteen key allies and partners would be exempt, the plan has faced criticism from companies within the industry. Nvidia’s vice president of government affairs, Ned Finkle, labeled the proposal as “misguided” and warned of its potential to disrupt innovation and global economic growth.
The proposal is subject to a 120-day comment period, extending into the beginning of President-elect Donald Trump’s term. Finkle expressed anticipation for a return to policies that reinforce American leadership, stimulate economic growth, and maintain the nation’s competitive advantage in AI and other sectors. Shares of Nvidia closed down 1.97% at $133.23.
Oil Prices Surge Amidst US Sanctions on Russian Oil
Oil prices continued their upward trajectory for a third consecutive session, with Brent crude surpassing $80 per barrel, reaching a four-month high. This surge is attributed to broader US sanctions on Russian oil, which could compel India and China to increase their oil purchases from the Middle East, Africa, and the Americas. The increased demand could subsequently drive up both oil prices and shipping costs. The US Treasury Department recently imposed sanctions on several Russian oil producers and vessels involved in shipping Russian oil, aiming to reduce revenue streams supporting Russia’s war efforts in Ukraine.
Future Market Outlook and Earnings Season Insights
The continued rapid rise in bond yields could exert sustained pressure on stocks, as higher interest rates increase borrowing costs, potentially slowing economic growth. The higher yields also make bonds and other fixed-income assets more appealing compared to stocks. However, some analysts maintain a more optimistic outlook, emphasizing that strong economic news generally benefits equity markets in the long run. According to Adam Turnquist, chief technical strategist at LPL Financial, while the market has temporarily shifted to a “good-news-is-bad-news” dynamic, positive economic indicators typically signify stronger growth, potential for increased earnings, and reduced recession risk.
This week marks the commencement of corporate earnings season, providing insights into companies’ performance in the face of higher interest rates. Reports from six major US banks are expected starting Wednesday. These reports are anticipated to offer valuable perspectives on loan demand, credit card usage, credit quality, and other crucial economic indicators. Furthermore, bank CEOs are expected to share their assessments of the current economic climate and outline potential challenges and opportunities, including the impact of new policies from the incoming US administration.
Notable Market Movers
Several other stocks experienced significant movements on Monday:
- Trump Media stock surged 21.5% to $42.91 in anticipation of Trump’s inauguration.
- Moderna shares fell nearly 17% after the company reduced its 2025 sales forecast by $1 billion.
- U.S. Steel shares rose following reports of a potential joint bid from Cleveland Cliffs and Nucor.
- Howard Hughes Holdings jumped 9.5% after Bill Ackman’s Pershing Square proposed a merger deal.
- Bitcoin declined almost 1% to 93,655.72 as investors shifted away from riskier assets.
Conclusion
The mixed performance of the US stock market highlights the complex interplay of factors influencing investor sentiment. While concerns over potential rate hikes and new export curbs weighed on tech stocks, other sectors showed resilience. The upcoming earnings season and further developments regarding economic data and policy decisions will likely play a significant role in shaping market trends in the coming weeks.
