Market Update: Stocks Climb on Chip Avengement Amid Mixed Economic Signals

Stocks Rally, But Economic Data Creates Mixed Signals

The S&P 500 Index ($SPX) (SPY) is up +0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) has gained +0.70%, and the Nasdaq 100 Index ($IUXX) (QQQ) shows a +0.81% increase today. In futures, March E-mini S&P contracts (ESH25) are up +0.37%, while March E-mini Nasdaq futures (NQH25) are up +0.40%.

Today’s gains in stocks are primarily driven by a rebound in chip stocks, recovering from previous losses. Energy stocks also benefited as the price of WTI crude oil rose over +1% to reach a 2-1/2 month high.

However, stock indexes trimmed their highest gains following unexpected data showing weekly U.S. initial unemployment claims fell to an 8-month low. This signals potential tightening in Federal Reserve policy. Adding to the pressure, Tesla fell -4% after reporting fewer Q4 auto deliveries than anticipated.

Chinese stocks slumped as the Shanghai Composite Index fell over -2%, reaching a 5-week low, partly due to a dip in the Caixin manufacturing PMI, which dropped to 50.5 from an expected rise to 51.7. This raises concerns about global growth.

Market activity may be exaggerated this holiday week due to low trading volumes. Investors are looking toward Friday’s U.S. December ISM manufacturing index results, with expectations for a slight decline to 48.2.

In mortgage news, U.S. MBA mortgage applications fell -12.6% for the week ending December 27, with purchase applications down -6.8% and refinancing applications down -23.4%. The average 30-year fixed mortgage rate increased by +8 basis points to 6.97%, the highest in 5-1/2 months.

Weekly initial unemployment claims decreased unexpectedly by -9,000 to 211,000, indicating strength in the labor market contrary to expectations of a rise to 221,000.

Currently, the market anticipates an 11% chance of a -25 basis point rate cut in the Federal Open Market Committee (FOMC) meeting scheduled for January 28-29.

On the international front, European markets are down. The Euro Stoxx 50 dipped -0.22% from a two-week high, and the Shanghai Composite decreased by -2.66%. Japan’s Nikkei Stock 225 was closed today in observance of New Year’s Day.

Interest Rates

March 10-year T-notes (ZNH25) are up +6 ticks, with the 10-year T-note yield down -2.6 basis points to 4.543%. T-notes are seeing upward movement due to strong European bond performance, while recent jobless claims data tempered growth as it indicated a robust job market.

European government bond yields are declining, with the 10-year German bund yield falling to a one-week low of 2.327%. Meanwhile, the 10-year UK gilt yield slipped to 4.533%, marking a similar trend.

The Eurozone’s December S&P manufacturing PMI was revised downward by -0.1 from 45.2 to 45.1.

Swaps indicate a 100% probability of a -25 basis point rate cut by the European Central Bank (ECB) at its next policy meeting on January 30, with a 12% likelihood of a -50 basis point cut.

US Stock Movers

The rally in chip stocks is chiefly uplifting the market, with Nvidia (NVDA) leading the Dow Jones gainers up more than +2%. Other notable gainers include ARM Holdings Plc (ARM) and ASML Holding NV (ASML), among others. Companies like Analog Devices (ADI), Intel (INTC), and Microchip Technology (MCHP) also reported over +1% gains.

Energy stocks are climbing as well, driven by crude oil prices reaching a recent peak. APA Corp (APA), Devon Energy (DVN), and Haliburton (HAL) are up more than +2%. Other significant players, including Exxon Mobil (XOM) and Chevron (CVX), also rose over +1%.

In a positive turn, Cloudflare (NET) increased more than +4% after Goldman Sachs upgraded it to a buy rating with a $140 price target.

Cryptocurrency-connected stocks saw a boost as Bitcoin (^BTCUSD) rose over +1%. This influenced gains for Coinbase Global (COIN) and others, with increases exceeding +3% for some firms.

US Bancorp (USB) is up more than +1% after an upgrade by D.A. Davidson, now targeting $60, while RTX Corp (RTX) rose similarly following a Deutsche Bank upgrade with a $140 target.

On the downside, Tesla (TSLA) has taken a hit, leading S&P 500 and Nasdaq 100 losers down more than -4% after reporting Q4 auto deliveries of 495,570, which fell short of expectations.

Apple (AAPL) declined more than -2% after agreeing to pay $95 million to settle a class-action lawsuit related to privacy issues involving Siri user data.

Neumora Therapeutics (NMRA) plummeted over -80% after its Phase 3 study on navacaprant for depression failed to show significant improvement.

SoFi Technologies (SOFI) dropped more than -5% following a downgrade from Keefe, Bruyette & Woods, while CareTrust REIT (CTRE) and Healthcare Realty Trust (HR) also fell more than -1% after respective downgrades from Wedbush.

Earnings Reports (1/2/2025)

Critical Metals Corp (CRML), Lifecore Biomedical Inc (LFCR), Resources Connection Inc (RGP).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, view the Barchart Disclosure Policy here.