Equities finished mostly higher on Monday, with the S&P 500 rebounding from a two-month low as U.S. Treasury yields remained elevated. Investors have scaled back expectations for the pace of interest rate cuts by the Federal Reserve, as inflation remains above target and the economy continues to show robust growth. The Dow Jones Industrial Average rose nearly 0.9%, buoyed by a 4% jump in UnitedHealth Group shares after the Biden administration proposed a 2.2% increase in Medicare Advantage payment rates for 2026. However, the Nasdaq declined by 0.4%, weighed down by a 2% drop in Nvidia following news of tighter U.S. restrictions on AI chip exports, and a sharp 17% slide in Moderna, which cut its 2025 sales forecast by $1 billion.
Meanwhile, the benchmark 10-year U.S. Treasury yield climbed to 4.8%, its highest level in 14 months, reflecting expectations of stickier inflation and limited rate cuts from the Fed. Despite this pressure, the S&P 500 remains only about 4% off its all-time highs, with the Nasdaq down around 5%. Market corrections of 5%-15% are typical in any given year, and with the U.S. economy continuing to outperform expectations and corporate earnings remaining strong, severe or prolonged bear markets appear unlikely. However, heightened sensitivity to economic data persists, as investors monitor signs of potential economic weakness, which could amplify market volatility in the months ahead.
Latest Market and Economic Update
Asia:
Asian equities were mixed on Tuesday, with Chinese shares surging on reports of a gradual U.S. tariff increase, while Japanese shares led losses amid scaled-back expectations for U.S. rate cuts in 2025. The Shanghai Shenzhen CSI 300 rose 2%, while Japan’s Nikkei 225 fell 1.7%, with regional markets also awaiting key economic data this week.
U.S.:
U.S. equities are expected to open slightly higher on Tuesday as concerns over disruptive trade tariffs under President-elect Donald Trump eased following reports of a gradual tariff hike plan. Focus is also on the start of earnings season, with major banks set to report results, while rising bond yields weigh on growth shares.
Europe:
European shares fell on Monday, with the STOXX 50 and STOXX 600 dropping 0.5% amid concerns over rising bond yields and inflation. Tech and consumer discretionary shares, including ASML and Ferrari, led losses, while banks like BBVA and ING gained, alongside energy firms TotalEnergies and ENI.
Currencies and Commodities:
- The U.S. dollar remained near a 26-month high, supported by strong economic data, elevated Treasury yields, and reduced expectations for rate cuts in 2025.
- The euro hovered close to a two-year low at $1.02475, pressured by the dollar’s strength and lingering inflation concerns.
- Oil prices eased slightly in Asian trading on Tuesday, retreating from a four-month high driven by new U.S. sanctions targeting Russian oil exports. Concerns over supply disruptions and a strong U.S. dollar weighed on prices, with Brent at $80.77 and WTI at $77.12 per barrel.
Equities on the Move
- TikTok/Elon Musk: Chinese officials are reportedly considering selling TikTok’s U.S. operations to Elon Musk if a proposed ban by U.S. authorities proceeds, though ByteDance prefers to retain ownership. The potential ban, linked to national security concerns, has intensified ahead of a January 19 Supreme Court deadline, with a sale potentially aligning TikTok’s management with Musk’s approach to Twitter, now “X.”
- Nvidia: Facing delays in deploying its Blackwell AI chips due to overheating and connectivity issues, impacting major customers like Microsoft and Amazon. Despite setbacks, Nvidia remains optimistic about the chip’s potential, with hopes that resolving the issues could lead to increased orders.
- Robinhood: Agreed to pay $45 million to settle SEC charges over record-keeping, trade reporting, and rule violations, including failures in retaining work-related communications and addressing cybersecurity risks. The firm admitted to the breaches and stated its commitment to compliance and innovation under the SEC’s oversight.
- Cleveland-Cliffs: Considering an all-cash bid for U.S. Steel, in partnership with Nucor, with a potential offer in the high $30s per share. The move aims to counter Nippon Steel’s $14.9 billion bid, which has faced political and legal challenges, including a block by President Biden.
- Arm Holdings: Exploring a price increase of up to 300% and potentially designing its own chips, competing with major customers like Apple and Qualcomm. The strategy aims to increase annual smartphone revenue by $1 billion over the next decade.
- Honeywell: Reportedly planning to break up into two companies—automation and aerospace/defense—following pressure from Elliott Investment Management. The split, expected to be announced with Q4 earnings in February, could unlock significant value.
- Pfizer: Developing its experimental obesity drug danuglipron and plans to begin a late-stage study this year. The company aims to provide a convenient oral alternative to injectable weight-loss drugs dominating the market.
Upcoming Data and Events
- U.S.:
- Producer Price Index (PPI): Insights into inflation trends.
- NFIB Business Optimism Index: Gauging business sentiment.
- Europe:
- Eurozone Industrial Production Figures: Indicating regional economic activity.
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