The S&P 500 Index ($SPX) (SPY) Friday closed up +1.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.67%. March E-mini S&P futures (ESH25) rose +1.17%, and March E-mini Nasdaq futures (NQH25) rose +1.52%.
Stocks settled moderately higher Friday due to strength in megacap technology stocks and chip makers. Stocks added to their gains Friday on dovish comments from Richmond Fed President Barkin, who said, "Inflation is not yet back to target, so we still have more work to do, but we don't think we need to be as restrictive as we once were to finish that job."
Stock indexes rose to their highs Friday after Louisiana Republican Mike Johnson won reelection as Speaker of the House of Representatives. The election of Johnson as speaker could allow for easier passage of President-elect Trump’s business-friendly deregulatory agenda.
Stocks maintained their gains even after T-note yields erased an early decline and moved higher on the stronger-than-expected US Dec ISM manufacturing report, a hawkish factor for Fed policy. Also, Richmond Fed President Barkin said there are still upside risks to inflation and growth, which puts him in the camp of "wanting rates to stay restrictive for longer."
Concerns about China’s economic growth outlook are weighing on Chinese stocks and are bearish for global growth prospects. The Shanghai Composite Stock Index fell more than -1% today to a 1-1/2 month low, and the yuan sank to a 14-month low against the dollar.
The US Dec ISM manufacturing index unexpectedly rose +0.9 to a 9-month high of 49.3, stronger than expectations of a decline to 48.2.
The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.
Overseas stock markets on Friday settled lower. The Euro Stoxx 50 closed down -0.94%. China’s Shanghai Composite Index fell to a 1-1/2 month low and closed down -1.57%. Japan’s Nikkei Stock 225 was closed for a bank holiday.
Interest Rates
March 10-year T-notes (ZNH25) Friday closed down -5.5 ticks. The 10-year T-note yield rose +3.5 bp to 4.594%. Mar T-notes Friday gave up an early advance and turned lower, and T-note yields rose after the US Dec ISM manufacturing index unexpectedly strengthened. T-notes added to their losses after Richmond Fed President Barkin said that there are still upside risks to inflation and growth, which puts him in the camp of "wanting rates to stay restrictive for longer." Also, strength in stocks Friday curbed safe-haven demand for T-notes. Supply pressures are weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds next week, beginning with Monday’s $58 billion auction of 3-year T-notes.
European government bond yields on Friday were mixed. The 10-year German bund yield climbed to a 1-3/4 month high of 2.428% and finished up +4.6 bp to 2.425%. The 10-year UK gilt yield fell -0.2 bp to 4.593%.
The German Dec unemployment change rose by +10,000, showing a stronger labor market than expectations of +15,000. The Dec unemployment rate remained steady at 6.1%, better than expectations of an increase to 6.2%.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and at 7% for a -50 bp rate cut at that meeting.
US Stock Movers
The strength of megacap technology stocks Friday was supportive of the broader market. Tesla (TSLA) closed are up more than +8%. Also, Amazon.com (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta Platforms (META) closed up more than +1%.
Chip makers rallied on Friday and boosted the overall market. ARM Holdings Plc (ARM) closed up more than +10%, and Nvidia (NVDA) closed up more than +4% to lead gainers in the Dow Jones Industrials. Also, Advanced Micro Devices (AMD), Marvell Technology (MRVL), Applied Materials (AMAT), Lam Research (LRCX), ON Semiconductor (ON), and KLA Corp (KLAC) closed up more than +3%. In addition, Micron Technology (MU) and Qualcomm (QCOM) closed up more than +2%.
Block (SQ) closed up more than +6% after Raymond James upgraded the stock to outperform from market perform with a price target of $115.
Chewy (CHWY) closed up more than +6% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $42.
Jabil (JBL) closed up more than +4% after it said it issued a warrant to Amazon.com to buy up to 1.16 million company shares.
J.B. Hunt Transport Services (JBHT) closed up more than +3% after Susquehanna Financial upgraded the stock to positive from neutral with a price target of $200.
PulteGroup (PHM) closed up more than +2% after Wedbush upgraded the stock to outperform from neutral with a price target of $135.
Carlyle Group (CG) closed up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $60.
US Steel (X) closed down more than -6% on reports that President Biden will block the sale of the company to Japan’s Nippon Steel.
Carvana (CVNA) closed down more than -10% after Hindenburg Research said it took a short position in the stock as Carvana’s subprime loan portfolio carries a substantial risk, and its growth is unsustainable.
Alcohol beverage stocks were under pressure on Friday after the US Surgeon General said labels on alcohol products like beer and wine should warn of their cancer links. As a result, Molson Coors Beverage (TAP) closed down more than -3%, and Brown-Forman Corp (BF.A) closed down more than -2%. Also, Constellation Brands (STZ) closed down -0.29%.
Adobe (ADBE) closed down more than -2% to lead losers in the Nasdaq 100 after UBS cut its price target on the stock to $475 from $525.
Vertex Inc (VERX) closed down more than -3% after Raymond James downgraded the stock to market perform from outperform.
Stellantis NV (STLA) closed down more than -1% after some of the company’s electric vehicle models that had previously received up to $3,750 in US tax credits are now ineligible under stricter new rules.
ACADIA Pharmaceuticals (ACAD) closed down more than -1% after Guggenheim Securities downgraded the stock to neutral from buy.
Earnings Reports (1/6/2025)
Commercial Metals Co (CMC).
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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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