Equities Face Persistent Challenges
Equity markets faced a tough environment last week, with major indices closing lower for the third time in four weeks. On Friday, the S&P 500 index fell by 1.32%, slipping below its 20-day moving average intraday before recovering slightly to close at 5,870. The decline was driven by strong retail sales data and hawkish remarks from Federal Reserve Chair Jerome Powell. These developments caused expectations for a December rate cut to plummet to below 60%, down from earlier peaks near 80%.
Despite late-session “dip buying,” caution remained prevalent as investors digested the Federal Reserve’s emphasis on patience in adjusting monetary policy. For the week, the S&P 500 dropped 2.28%, while the Nasdaq Composite fell 2.92%, led by a sharp sell-off in the technology sector. Rising Treasury yields and a strengthening US dollar added to headwinds for technology stocks, with companies like Nvidia, Apple, and Microsoft suffering significant losses.
Defensive Sectors Show Resilience
In contrast to the broader market struggles, defensive sectors such as utilities and real estate posted modest gains. This reflected a shift toward safer investments amidst growing concerns over fiscal imbalances and potential tariff-related challenges tied to the incoming administration.
Latest Market Update: Regional Insights
US and European Markets Under Pressure
US equities ended Friday sharply lower, with the S&P 500 declining 1.3% due to hawkish Fed commentary and losses in major tech firms like Nvidia, Amazon, and Meta. For the week, the S&P 500 fell 2.28%, and the Nasdaq slid 2.92%.
European markets followed suit, with the Euro Stoxx 50 falling 0.8% on Friday. Rising French inflation and hawkish comments from Jerome Powell weighed on sentiment. The DAX and CAC 40 also saw declines, reflecting persistent economic uncertainties.
Gains in Asian Markets
Asian equities largely advanced on Monday, led by South Korea’s KOSPI, which rose around 2%, buoyed by a more than 5% rally in heavyweight Samsung Electronics. Shares in Australia, China, and Hong Kong also climbed.
Commodities and Currency Markets
Oil Prices and Geopolitical Factors
Oil prices saw modest gains on Monday amid escalating geopolitical tensions between Russia and Ukraine. However, concerns about weaker demand from China and forecasts of a global oil surplus limited the upside. Last week, oil prices declined by more than 3%.
Currency Markets Hold Steady
The dollar index remained stable around 106.6, near two-year highs, supported by expectations of fewer rate cuts from the Federal Reserve and the resilience of the US economy. The euro continued to face pressure, trading at 1.0544 against the dollar.
Interest Rates and Treasury Yields
US Treasury yields rose over the past week, reflecting stronger-than-expected economic indicators and market expectations of prolonged elevated interest rates. This rise contributed to declines in investment-grade indices and had a more pronounced effect on high-yield indices, signaling increased risk aversion among investors.
Equities on the Move
Several notable equity movements occurred last week:
- Nvidia: Nvidia is addressing overheating issues in its new Blackwell AI chips, according to reports from The Information. Despite making late-stage design changes, the company has not informed customers of delays ahead of its earnings release this Wednesday.
- Tesla: Shares climbed over 4% in after-hours trading on Friday, following news that the incoming Trump administration plans to prioritize a federal framework for self-driving vehicles, boosting optimism for Tesla’s Robotaxi ambitions.
- Applied Materials: Shares dropped by more than 9% on Friday, despite fiscal Q4 EPS and revenue surpassing analysts’ expectations. Weakness in the semiconductor market outside of AI-related chips remains a drag on the company’s outlook.
- Alibaba: The Chinese e-commerce giant saw its shares decline 2.2% after quarterly sales missed analyst estimates. Sales grew by 5% year-over-year, matching growth reported by competitor JD.com.
- Palantir: Palantir’s shares surged over 11% following the announcement that they will transition from the New York Stock Exchange to the Nasdaq and are expected to join the Nasdaq 100 index, potentially driving institutional buying.
- Ulta Beauty: Shares fell 4.6% on Friday after Berkshire Hathaway revealed it had reduced its stake in the cosmetics retailer by over 96%. Ulta’s shares have declined more than 25% year-to-date.
- Airlines: Goldman Sachs upgraded Delta, United, and Alaska Air to Buy, while downgrading JetBlue and Southwest, citing challenges in recovering demand and managing costs.
- Country Garden: The Chinese property developer submitted a revised offshore debt restructuring proposal, which includes weaker cash flow projections. Facing $11 billion in defaulted offshore bonds, the company hopes to gain creditor support before a January 2025 court hearing to avoid liquidation.
Upcoming Data and Events
Key upcoming data points and events that could shape global market dynamics include:
- US Housing Data: Investors will scrutinize updates on housing trends.
- Nvidia Earnings: Nvidia’s results on Wednesday are expected to set the tone for the technology sector.
- Global PMI Releases: These will offer insights into global economic health.
- China’s Economic Updates: Further data on China’s economy may impact international sentiment.
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