US Stocks Face Major Declines as Tech and Chip Sectors Struggle
The S&P 500 Index ($SPX) (SPY) today is down -1.46%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.64%. March E-mini S&P futures (ESH25) are down -1.40%, and March E-mini Nasdaq futures (NQH25) are down -1.56%.
Market Overview
Stocks are experiencing significant drops today, with major indices hitting one-week lows. The tech sector’s weakness, particularly among large-cap companies, is a major contributor to the overall market’s decline. Additionally, a selloff in chip stocks is negatively impacting market performance. Boeing, facing challenges from a recent crash of a 737-800 at Muan International Airport in South Korea, has fallen over -3%. The market also grapples with year-end profit-taking as 2024’s final trading day approaches. On a more optimistic note, energy stocks are benefiting from a rise in WTI crude oil prices, which have reached a two-week high.
Economic Indicators Mixed
The latest economic reports reveal a mixed picture. The December MNI Chicago PMI unexpectedly dropped -3.3 to 36.9, the lowest level in seven months, which differed from anticipated growth to 43.0. However, pending home sales in November increased by +2.2% month-over-month, exceeding the +0.8% expectation. Furthermore, the December Dallas Fed manufacturing outlook survey rose unexpectedly by +5.1 to 3.4, a high not seen in two and three-quarter years, contrary to forecasts of a decline to -3.0.
Market Sentiment and Interest Rates
Thin trading volumes during this holiday week may lead to exaggerated stock movements, especially as most global equity markets are set to close for the New Year’s holiday on Wednesday. Investors are closely awaiting Friday’s US December ISM manufacturing index, which is predicted to decrease -0.2 to 48.2, to gain insight into the manufacturing sector’s health. Current market sentiments estimate an 11% chance of a -25 basis point rate cut at the FOMC meeting scheduled for January 28-29.
International Market Trends
Stock markets overseas show mixed results. The Euro Stoxx 50 has decreased by -0.69%, while China’s Shanghai Composite Index increased by +0.21%. Japan’s Nikkei Stock 225 ended the day down -0.96%.
Interest Rate Movements
March 10-year T-notes (ZNH25) are up +15 ticks today, with the 10-year T-note yield down -7.5 basis points to 4.551%. The T-notes have risen to a one-week high as investors seek safe-haven assets amid the equity market’s decline. The slump in the December MNI Chicago PMI has further fueled safe-haven demand.
Support for T-note prices is coming from month-end portfolio rebalancing, as bond fund managers buy longer-term government debt. Bloomberg estimates that the duration of bond indexes will extend by about 0.07 years this month.
European government bond yields are similarly declining. The 10-year German bund yield decreased from a six-week high of 2.404% to 2.357%, down -3.9 basis points. The UK gilt yield fell from a one-week high of 4.646% to 4.605%, down -2.8 basis points.
Inflation Insights
Spain’s December CPI (EU harmonized) increased by +2.8% year-over-year, surpassing the +2.6% forecast, marking the largest rise in five months. The core CPI also rose by +2.6% year-over-year, outperforming expectations of +2.4%.
According to ECB Governing Council member Holzmann, there may be a delayed approach to cutting interest rates if inflation risks from energy prices or euro depreciation intensify. Current swaps predict a 100% chance for a -25 basis point rate cut from the ECB at its January 30 meeting and a 12% chance for a -50 basis point reduction.
US Stock Movers
The pressure on mega-cap technology stocks continues to impact the broader market. Tesla (TSLA) has decreased by more than -3%, and Meta Platforms (META) is down over -2%. Major players like Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), and Apple (AAPL) have also lost more than -1%.
The chip sector is feeling the strain as well, with companies like Micron Technology (MU), Broadcom (AVGO), GlobalFoundries (GFS), and ON Semiconductor (ON) down over -3%. Other notable declines include Marvell Technology (MRVL), Applied Materials (AMAT), ASML Holding NV (ASML), and Intel (INTC), all down more than -2%. Advanced Micro Devices (AMD) and Texas Instruments (TXN) have lost more than -1%.
Boeing (BA) leads the Dow Jones losses, down more than -3% following the aircraft incident.
Axsome Therapeutics (AXSM) has fallen more than -12% after its Phase 3 trial for the Alzheimer’s treatment AXS-05 showed insignificant results for the primary endpoint.
MicroStrategy (MSTR) is down over -6%, with Bitcoin prices falling more than -3% after announcing a $209 million Bitcoin purchase last week.
Energy Sector Resilience
Energy stocks are seeing gains thanks to a rally in WTI crude oil, which has reached a two-week high. Coterra Energy (CTRA) is up more than +3%, and Devon Energy (DVN) has risen by more than +2%. Diamondback Energy (FANG) gained +0.75%, leading gains in the Nasdaq 100.
V2X Inc (VVX) increased by +0.52% after receiving a $170 million contract to support the Drug Enforcement Administration’s fleet.
Earnings Reports
Today marks earnings reports from Gencor Industries Inc (GENC) and Renovaro Inc (RENB).
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this article are provided for informational purposes. For more details, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
