US Stock Markets Surge on Economic Optimism and Strong Earnings
Key Indexes Reach New Heights Amid Positive Economic Indicators
The S&P 500 Index ($SPX) (SPY) closed up +1.00% on Friday, while the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.78%, and the Nasdaq 100 Index ($IUXX) (QQQ) increased by +1.66%. March E-mini S&P futures (ESH25) are up +0.91%, with March E-mini Nasdaq futures (NQH25) up +1.56%.
Stock markets rallied on Friday, with the S&P 500 and Nasdaq 100 achieving their highest levels in 1.5 weeks, and the Dow Jones Industrials reaching a 1-month peak. This surge was driven by strong performance in chip stocks and encouraging US economic news. December housing starts rose +15.8% month-over-month, reaching a 10-month high of 1.499 million, surpassing expectations of 1.327 million. Moreover, December building permits fell slightly by -0.7% to 1.483 million, also above the anticipated 1.460 million. Additionally, December manufacturing production increased by +0.6% month-over-month, outpacing the forecast of +0.2% and marking the most significant rise in four months.
Positive momentum for US stocks was bolstered by strong performances in European markets, where the Euro Stoxx 50 reached a 24-year high on Friday. The stock market was also buoyed by easing US-China tensions; Chinese President Xi Jinping spoke on the phone with President-elect Trump, who described the discussion as beneficial for both nations.
Global equity markets showed signs of renewed strength as China’s economy reported robust growth. China’s Q4 GDP grew by +5.4% year-over-year, exceeding expectations of +5.0% and marking its fastest growth in six quarters. Additionally, December industrial production in China rose by +6.2% year-over-year, surpassing forecasts of +5.4% and the largest increase in eight months.
Friday’s stock boost was complemented by the International Monetary Fund (IMF) raising its 2025 global GDP forecast to 3.3% from the previous estimate of 3.2%, attributing the change to stronger demand in the US.
However, Cleveland Fed President Hammack’s hawkish comments reminded investors of persistent inflation concerns, stating that the Fed can afford to be “very patient” with further interest rate cuts. This weighed on market sentiment.
Bitcoin (^BTCUSD) surged more than +4% to reach a one-month high after a Bloomberg report indicated President-elect Trump aims to prioritize cryptocurrency by instituting a national policy and establishing a crypto advisory council.
As earnings season kicks off, analysts expect S&P 500 earnings to grow by 7.5% in Q4, marking the second-highest pre-season forecast in the last three years. Markets currently assess the chances at 1% for a -25 basis point rate cut during the upcoming January 28-29 FOMC meeting.
Overseas markets concluded mixed on Friday. The Euro Stoxx 50 rose +0.81%, while China’s Shanghai Composite Index gained +0.18%. Conversely, Japan’s Nikkei Stock 225 fell to a 1.5-month low, closing down -0.31%.
Interest Rates
March 10-year T-notes (ZNH25) saw a minimal decrease of -2 ticks, while the 10-year T-note yield rose +0.5 basis points to 4.611%. The decline came after T-notes reached a two-week high earlier in the week, reacting to stronger-than-expected US economic reports. Hammack’s hawkish remarks added further pressure on T-notes.
T-notes initially benefitted from gains in European government bonds alongside a drop in inflation expectations, as the 10-year breakeven inflation rate fell to a one-week low of 2.405% on Friday.
European government bond yields decreased as well. The yield on the 10-year German bund fell to a one-week low of 2.506%, finishing down -1.2 basis points at 2.535%. Similarly, the 10-year UK gilt yield dropped to a 1.5-week low of 4.611%, finishing down -2.0 basis points to 4.660%.
Comments from ECB Governing Council member and Bundesbank President Nagel highlighted the need for cautious normalization of monetary policy, citing persistent inflation, particularly in service prices. The IMF revised its Eurozone GDP estimate for 2025 to 1.0% from an earlier 1.2% prediction.
UK retail sales excluding auto fuel unexpectedly fell -0.6% month-over-month, missing expectations of a +0.3% increase. Markets are discounting a 99% chance of a -25 basis point rate cut during the ECB’s January 30 policy meeting.
US Stock Movers
Chip stocks helped lift the market on Friday, with Marvell Technology (MRVL) surging over +6% and GlobalFoundries (GFS) rising more than +4%. Broadcom (AVGO) and Microchip Technology (MCHP) climbed more than +3%, alongside Nvidia (NVDA) which also gained over +3%, boosting the Dow Jones Industrials. Several other tech stocks, including Micron Technology (MU), Qualcomm (QCOM), AMD (AMD), ON Semiconductor (ON), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) saw increases of over +2%.
Following Bitcoin’s rise, cryptocurrency-related stocks also saw gains. Coinbase Global (COIN), MicroStrategy (MSTR), MARA Holdings (MARA), and Riot Platforms (RIOT) each increased by more than +4%.
Intel (INTC) gained over +9% after a report suggested it could be an acquisition target. Qorvo (QRVO) surged over +14% after Starboard Value revealed it had amassed a 7.7% stake and intended to advocate for changes to enhance stock value. Schlumberger NV (SLB) closed up more than +6% after reporting a Q4 adjusted EBITDA of $2.38 billion, outpacing the consensus of $2.36 billion and announcing a dividend increase.
Lumentum Holdings (LITE) climbed over +5% following a double-upgrade from Barclays. Truist Financial Corp (TFC) also gained more than +5% after reporting a Q4 taxable equivalent net interest income of $3.64 billion, above the expected $3.60 billion. Applied Materials (AMAT) and Cloudflare (NET) saw gains of over +3% and +2%, respectively, after receiving upgrades.
On the downside, JB Hunt Transport Services (JBHT) plummeted more than -7% after its Q4 EPS report of $1.53 fell short of the $1.63 consensus. Walgreens Boots Alliance (WBA) fell more than -3% due to a lawsuit from the US Justice Department regarding unlawful prescription practices. State Street (STT) dropped more than -2% over a forecast of stagnant net interest income, while Vistra Corp (VST) decreased more than -1% following a fire incident at one of its power plants.
Several companies faced setbacks; General Motors (GM) and HubSpot (HUBS) each saw declines of more than -1% amid regulatory and market pressures, respectively.
Earnings Reports (1/21/2025)
Upcoming earnings reports include 3M Co (MMM), Capital One Financial Corp (COF), Charles Schwab Corp/The (SCHW), DR Horton Inc (DHI), Fifth Third Bancorp (FITB), KeyCorp (KEY), Netflix Inc (NFLX), Prologis Inc (PLD), Seagate Technology Holdings PL (STX), and United Airlines Holdings Inc (UAL).
On the date of publication, Rich Asplund did not hold any positions in the stocks mentioned in this article. All information and data presented are for informational purposes only. For further details, please see the Barchart Disclosure Policy.
The views and opinions expressed herein reflect the author’s perspective and may not represent those of Nasdaq, Inc.
