Market Retreats Amid Tech Weakness and Economic Data Volatility
The S&P 500 Index ($SPX) (SPY) closed down -1.07% on Monday, marking a decline for the Dow Jones Industrials Index ($DOWI) (DIA) of -0.97% and the Nasdaq 100 Index ($IUXX) (QQQ) by -1.28%. March E-mini S&P futures (ESH25) fell -1.20%, while March E-mini Nasdaq futures (NQH25) dropped -1.43%.
Technology Stocks Pressure Markets
On Monday, U.S. stocks experienced a downturn, led by declines in major technology companies. This contributed to the S&P 500, Dow Jones, and Nasdaq 100 hitting week-long lows. The technology sector faced additional pressure from a selloff in chip stocks. Moreover, Boeing’s shares fell over -2% following a tragic crash of a 737-800 aircraft in South Korea. Year-end profit-taking contributed to these declines as investors made adjustments before the last trading day of 2024. On a brighter note, energy stocks benefited from a +16% spike in natural gas prices, reaching a one-year high, and a rise in WTI crude oil prices to a two-week high.
Mixed Economic Signals
Economic news released on Monday presented a mixed bag for investors. The December MNI Chicago PMI unexpectedly dropped -3.3 to a seven-month low of 36.9, which was below the anticipated increase to 43.0. In contrast, pending home sales for November rose +2.2% month-over-month, outperforming expectations of +0.8%. Also, the Dallas Fed manufacturing outlook for December showed a surprising increase of +5.1, reaching a 2.75-year high of 3.4, contrary to expectations of a decline to -3.0.
Market Volatility Expected During Holiday Season
Low trading volumes could lead to exaggerated market movements this week, particularly with many global markets closed for the New Year’s holiday on Wednesday. Investors are keenly awaiting Friday’s U.S. December ISM manufacturing index, which is projected to decline by -0.2 to 48.2, to better understand the state of the U.S. manufacturing sector.
Interest Rates and Global Markets
The likelihood of a -25 basis point rate cut by the FOMC at the January 28-29 meeting is currently estimated at only 11%.
International stock markets closed mixed on Monday. The Euro Stoxx 50 fell -0.60%, while China’s Shanghai Composite Index edged up +0.21%. Japan’s Nikkei Stock 225 ended down -0.96%.
Bond Market Movement
In the bond market, March 10-year T-notes (ZNH25) saw a modest rise, closing up +17 ticks, as the yield on the 10-year T-note fell -7.8 basis points to 4.547%. T-note prices received a boost from the equity market slump, prompting a safe-haven demand for these instruments. Additionally, the December MNI Chicago PMI’s notable contraction lent further support for dovish Fed policy.
Month-end rebalancing contributed to T-note gains as bond fund managers bought longer-term debt, with Bloomberg estimating an increase in the duration of bond indexes by 0.07 of a year this month. European government bond yields also decreased on Monday. The 10-year German bund yield dropped -2.9 basis points to 2.367%, while the 10-year UK gilt yield fell -2.2 basis points to 4.611%.
In Spain, the December Consumer Price Index rose +2.8% year-over-year, surpassing expectations of +2.6%, marking the largest increase in five months. The December core CPI climbed +2.6%, also above expectations of +2.4%.
Comments from ECB Governing Council member Holzmann indicated that interest rates may not decrease quickly due to inflation risks associated with energy prices and euro depreciation. Currently, swaps are indicating a 100% probability of a -25 basis point rate cut by the ECB at its January 30 meeting.
U.S. Stock Highlights
Mega-cap technology stocks faced significant selling pressure on Monday. Tesla (TSLA) fell over -3%, while Meta Platforms (META), Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), and Alphabet (GOOGL) each declined more than -1%.
The chip sector was notably weak, with Micron Technology (MU) and ON Semiconductor (ON) both dropping over -3%. Other semiconductor stocks including NXP Semiconductors NV (NXPI), ASML Holding NV (ASML), Broadcom (AVGO), and Intel (INTC) also saw declines exceeding -2%. Boeing (BA) closed down more than -2% due to the aircraft crash news.
MicroStrategy (MSTR) suffered heavily, closing down more than -8% after Bitcoin prices hit a one-month low, following the company’s announcement of a $209 million Bitcoin purchase last week. Axsome Therapeutics (AXSM) fell over -2% after the Phase 3 trial for its Alzheimer’s treatment did not meet its primary endpoint.
Energy Sector Performance
Conversely, energy stocks rallied amid rising natural gas and crude oil prices. EQT Corp (EQT) led gainers in the S&P 500 with an increase of over +5%, while Coterra Energy (CTRA) gained more than +3%. Devon Energy (DVN) and Diamondback Energy (FANG) also saw increases, with then closing up more than +2% and +1%, respectively. Vivid Seats (SEAT) soared +19% after announcing that it is exploring a potential sale in response to takeover interest.
V2X Inc (VVX) rose over +2% after securing a five-year contract worth $170 million to support the Drug Enforcement Administration’s fleet of aircraft.
Earnings Reports (12/31/2024)
N/A.
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 are solely for informational purposes. For more information, 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.
