(Bloomberg) — A renewed wave of deep-pocketed buying sent stocks sharply lower following a sell-off sparked by the Federal Reserve’s sweeping rate hike.
About 350 companies in the S&P 500 advanced, paring much of the slide that the gauge had reached before Monday’s close to 1 percent. Banks rose ahead of the start of earnings season as energy stocks joined the rally in oil. However, losses at powerhouses such as Nvidia Corp and Apple Inc – are preventing a major rebound in US equities. Bonds remained steady after fears of stubborn price pressures saw traders upgrade bets on guidance.
“While this week’s cooler-than-expected inflation data won’t prompt the Fed to cut rates again this month, it could help ease some of the bearish momentum and signal a strong start to the earnings season,” Chris Larkin wrote in E-mail. * Trading from Morgan Stanley.
For Callie Cox at Ritholtz Wealth Management, while analysts are cutting earnings expectations “like crazy,” the scale of the decline is unusual, and reports over the next few weeks should help calm the market.
“If anything, earnings are a reminder of how we got here,” she said. “It’s important to remember how encouraging the story is for the economy right now. We were put off by our high expectations, but the foundation is solid enough that this dive could fool many buyers.
The S&P 500 was down 0.1%. The Nasdaq 100 fell 0.6%. The Dow Jones Industrial Average rose 0.6 percent. Bloomberg’s “Magnificent Seven” megacaps slide 1%. The Russell 2000 index of small firms retreated 0.5 percent.
The 10-year Treasury yield rose one basis point to 4.77 percent. The Bloomberg Dollar Spot Index fluctuated. The Bank of England successfully sold £750 million ($911 million) of gilts despite recent market turmoil. Oil hit a five-month high.
Underlying US inflation is likely to moderate only a touch by the end of 2024 against a backdrop of a strong labor market and a firm economy, supporting the Fed’s slower pace of rate cuts.
According to the median forecast in a Bloomberg survey of economists, the consumer price index excluding food and energy rose 0.2% in December after four consecutive months of 0.3% gains. Core CPI, a better snapshot of underlying inflation, rose 3.3% from a year ago – matching readings from the previous three months.
“The post-data reaction caused Treasuries to be oversold,” said Will Coppernoll at FHN Financial. “Bond market prices reflect too many investors’ confidence in the strength of the labor market and overly pessimistic inflation. There may be nothing on the calendar today or tomorrow to pull bond yields out of their upward float, but a 0.2% increase in core CPI on Wednesday As expected, the sentiment in the market will be on bond-power,” he said.
The equity market has seen a more pronounced reaction to macroeconomic news since late 2024, with the S&P 500 swinging at least 1% in either direction over the past 15 trading sessions since the Fed’s latest rate decision on Dec. 18.
According to Michael Kantrowitz, an investment strategist at Pepper Sandler & Co., sentiment around equities is being driven by bond yields more than at any point in the past 30 years. In the year A reversal of high value stocks over growth in 2007 is a dynamic that begins in 2022.
A surprise from US data this week, including inflation and retail sales, could create buying opportunities for risk assets, HSBC strategists said. The group led by Max Ketner said sentiment and positioning indicators are showing a mild buy signal.
“Some bad news will now become good news,” strategists wrote.
This year’s sharp decline in financial spreads shows that institutional investors’ stance on equities is changing as markets rethink the path of the Fed’s interest rate, according to Goldman Sachs Group Inc. strategists.
Funding spreads — the desire for long-term exposure through equity derivatives such as swaps, options and futures — fell to 70 basis points from 130 basis points at the end of December, he said.
“In our experience, large short-term movements in funds almost always mean a change in the interest trends of professional investors,” the team led by John Marshall wrote in a note to clients. “We believe pension funds, asset managers, hedge funds and CTAs have all been net sellers over the past few weeks.”
It is higher than the 90th percentile of strategic funds’ positions and could decline if high volatility continues, said Deutsche Bank strategists including Parag Tate.
Craig W. Johnson at Piper Sandler said, “Wall Street appears to have gone ‘fishing’ ahead of earnings season. Despite the deterioration in breadth and sentiment, early gains in major market indexes remain intact. Expect a deeper pullback to add to positions.”
UBS Strategists said the correlation between S&P 500 stocks could increase if tech earnings growth weakens, as the rest of the market is already falling.
Strategists including Jerry Fowler and Max Greenakoff reiterated that “disruption from AI tailwinds could lead to revenue consolidation.”
“Given recent strong jobs data, the Fed’s rate-cutting path will be slower in 2025 and this has resulted in tech stocks and risk assets, our 2025 bullish text for technology stocks is ill-adjusted and unchanged,” he said. For Daniel Ives at Wedbush.
With more IT budget dollars headed toward this wave of technology, he sees these grants as “golden buying opportunities to own the winners in the AI revolution.”
Earnings season kicks into full gear this week with reports from the financial sector. JPMorgan Chase & Co. And banks including Wells Fargo & Co. are expected to show continued gains from commercial and investment banking, which helped offset a decline in net interest income due to higher deposits and deferred loan demand.
Lenders are being asked about their outlook for 2025 as the Federal Reserve has signaled few rate cuts this year.
“Bank income has always been an efficient way to impact the economy and the consumer, particularly in relation to loan utilization and repayment,” said Michael Landsberg at Landsberg Bennett Private Wealth Management. “The big banks often give us a good idea of what to expect from consumer-oriented companies, which report earnings during earnings. If credit card usage ends, that’s typically good for companies that sell directly to consumers.”
Corporate Highlights:
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Apple Inc’s iPhone sales fell about 5% globally in the final quarter of last year, hurt by lower upgrades and competitors entering China.
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The White House has issued new restrictions on the sale of advanced AI chips by Nvidia Corp and its allies, leaving the Trump administration to decide whether and how to implement the restrictions, which have faced fierce industry opposition.
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Tesla Inc. Despite selling fewer vehicles than expected, it outperformed one of Germany’s highest-priced premium car brands last year.
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Macy’s Inc. It issued a downbeat outlook for sales in the current quarter, a sign that executives may be too optimistic about expectations for a strong holiday shopping season.
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Lululemon Athletics Inc. expects fourth-quarter sales to beat market expectations, with the top activewear brand fending off competitors and slower growth in consumer spending.
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Abercrombie & Fitch Co. raised its fourth-quarter sales outlook on better-than-expected holiday sales, but the increase was not enough to reassure investors that the retailer would continue its rapid growth.
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Shake Shack Inc. It reported better-than-expected fourth-quarter sales, indicating that efforts to raise its profile and serve customers more quickly are paying off.
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Health insurance companies that sell private Medicare Advantage plans in the U.S. will see higher premiums in 2026 than last year if a proposal released Friday is approved by the incoming Trump administration.
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Moderna Inc. It has cut its sales forecast for this year as it struggles with sluggish demand for its Covid and RSV vaccines.
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Johnson & Johnson has agreed to acquire Intracellular Therapies Inc., a company focused on treatments for central nervous system disorders, for about $14.6 billion.
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Sonos Inc. CEO Patrick Spence is to step down after eight years on the job, a move that follows a botched app update that frustrated customers and hampered growth.
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Eli Lilly & Company Scorpion Therapeutics Inc. They will pay up to $2.5 billion in cash to acquire a cancer drug that is being tested in early and mid-stage trials.
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MicroStrategy Inc.’s $243 million purchase of the enterprise software company marked its 10th consecutive weekly purchase, the bitcoin proxy said.
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Shares of Sage Therapeutics Inc. rose after Biogen Inc. offered to acquire the neuroscience-focused drugmaker for $469 million.
Key events this week:
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US PPI, Tuesday
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The Fed’s John Williams and Jeffrey Schmidt will speak on Tuesday
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Eurozone industrial production, Wednesday
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Citigroup, JPMorgan, Goldman Sachs, Bank of New York Mellon, Wells Fargo and BlackRock earnings, Wednesday
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US CPI, Empire Manufacturing, Wed
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The Fed’s John Williams, Tom Bark, Austin Golsbe and Neil Kashkari speak, Wednesday.
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TSMC earnings, Thursday
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The ECB will hold its December policy meeting on Thursday.
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Bank of America, Morgan Stanley earnings, Thursday
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US Initial Jobless Claims, Retail Sales, Import Prices, Thursday
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China GDP, Property Prices, Retail Sales, Industrial Production, Fri
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Eurozone CPI, Fri
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US housing starts, industrial production, Friday
Some of the major activities in the markets are-
Shares
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The S&P 500 was down 0.1% at 1:30 p.m. New York time
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The Nasdaq 100 fell 0.6%
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The Dow Jones industrial average rose 0.6 percent.
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The MSCI world index fell by 0.3%
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The Bloomberg Magma 7 Total Return Index fell 1%
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The Russell 2000 index fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index was little changed.
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The euro fell 0.3 percent to $1.0216
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The British pound fell 0.3% to $1.2176
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The Japanese yen rose 0.1% to 157.50 per dollar.
Cryptocurrencies
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Bitcoin fell 2.7% to $91,763.1
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Ether fell 8.4% to $2,989.99
Bonds
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The yield on 10-year Treasuries rose two basis points to 4.78 percent.
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Germany’s 10-year yield rose two basis points to 2.61%
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Britain’s 10-year yield rose five basis points to 4.88%.
Goods
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West Texas Intermediate crude rose 3.3 percent to $79.09 a barrel.
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Spot gold fell 1.1 percent to $2,660.83.
This story was produced with the help of Bloomberg Automation.
–Assisted by Sujata Rao, Margarita Kirakosian, Catherine Bosley, and Isabelle Lee.
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