Wall Street Faces Pressure as Chip Stocks Dip; Energy Sector Shines
The S&P 500 Index ($SPX) (SPY) closed down -0.43% on Tuesday, while the Dow Jones Industrials Index ($DOWI) (DIA) dropped -0.07%. The Nasdaq 100 Index ($IUXX) (QQQ) fell by -0.87%. March E-mini S&P futures (ESH25) decreased by -0.37%, and March E-mini Nasdaq futures (NQH25) fell by -0.86%.
Market Performance Overview
Stocks lost early gains on Tuesday, resulting in the S&P 500 and Nasdaq 100 reaching one-week lows. The rise in T-note yields, which reversed an initial drop, negatively impacted chip stocks and cast a shadow over the broader market. In contrast, energy stocks enjoyed a boost as WTI crude oil surged to an 8-week high.
Global Market Influences
Concerns from China contributed to the market’s downturn. The Shanghai Composite Stock Index fell -1% to a one-week low, hindered by slower-than-anticipated manufacturing growth. Specifically, the December manufacturing PMI in China reported a decline of -0.2 to 50.1, falling short of the 50.2 forecast.
US Economic Indicators
In domestic economic news, the October S&P CoreLogic US composite-20 home price index increased by +0.3% month-over-month and +4.2% year-over-year, surpassing expectations of +0.2% month-over-month and +4.1% year-over-year.
Market Sentiment this Holiday Week
Thin trading volumes during this holiday week could lead to greater stock price fluctuations, as many global equity markets will be closed on Wednesday for New Year’s. Investors are keenly awaiting the U.S. December ISM manufacturing index report on Friday to gauge the health of the manufacturing sector, with expectations predicting a slight decline to 48.2.
Interest Rate Expectations
The market is currently pricing in an 11% chance for a -25 basis point rate cut at the upcoming January 28-29 FOMC meeting.
International Market Movements
Overseas stock markets showed mixed results on Tuesday. The Euro Stoxx 50 gained +0.55%, while China’s Shanghai Composite Index dropped -1.63%, reaching a one-week low. Japan’s Nikkei Stock 225 remained closed due to a bank holiday.
Interest Rates and Bonds
March 10-year T-notes (ZNH25) closed down -7 ticks, with the yield rising +3.6 basis points to 4.569%. T-notes slipped from a one-week high, pressured by rising crude oil prices that are raising inflation expectations.
The 10-year German bund yield was inactive due to closures in Germany for the New Year’s holiday. Meanwhile, the 10-year UK gilt fell to a one-week low of 4.545%, ultimately ending down -4.3 basis points at 4.568%.
Market swaps are fully anticipating a -25 basis point rate cut from the European Central Bank at its January 30 policy meeting, with a 12% chance for a -50 basis point cut.
Stock Highlights
Chip stocks faced downward pressure, with ARM Holdings Plc (ARM) and Nvidia (NVDA) both dropping over -2%, leading losses in the Dow. Other chip makers such as Advanced Micro Devices (AMD) and Micron Technology (MU) also saw declines of more than -1%.
Tesla (TSLA) faced a challenging day, closing down more than -3% after recalling 77,713 vehicles in China due to software problems and potentially defective driver airbags.
Gains in the Energy Sector
Conversely, energy stocks rallied as WTI crude oil prices hit an 8-week high. Notable gainers included APA Corp (APA), ConocoPhillips (COP), Marathon Petroleum (MPC), and others, all closing up more than +2%.
Remarkable Stocks on the Rise
Acadia Pharmaceuticals (ACAD) rose over +10% after being announced as a replacement in the S&P SmallCap 600. Meanwhile, US Steel (X) saw an increase of over +9% following Nippon Steel’s proposal to secure government approval for its takeover attempt.
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 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.
