Market Overview

The stock market closed with losses at the index level this week, largely driven by rising market rates. Concerns about persistent inflation and the Federal Reserve's potential to maintain higher interest rates for an extended period were significant factors. The 10-year yield increased by 18 basis points to 4.78%, and the 2-year yield rose by 12 basis points to 4.40%. This movement was in response to economic releases, including a stronger-than-expected ISM Services PMI for December and a November JOLTS report showing increased job openings.

Economic Data Highlights

• The ISM Services PMI showed a notable increase in the Prices Index to 64.4% from 58.2%, surpassing the 60.0% level for the first time since January 2024.
• The ADP Employment Change report for December was below consensus at 122,000, while weekly Initial Claims unexpectedly dropped to 201,000.
• December's employment report showed a 256,000 increase in nonfarm payrolls and a decline in the unemployment rate to 4.1% from 4.2%.
• The preliminary January University of Michigan Consumer Sentiment index indicated a rise in inflation expectations.

FOMC Minutes and Market Reaction

The FOMC Minutes from the December 17-18 meeting echoed Fed Chair Powell's remarks, suggesting that the Fed should delay further rate cuts until inflation trends towards the 2% target or there are more pronounced labor market concerns.

Stock Market Performance

There was a broad retreat in stocks this week. The market-cap weighted S&P 500 fell 1.9%, while the equal-weighted S&P 500 dropped 1.7%. The Nasdaq Composite decreased by 2.3%, and the Dow Jones Industrial Average closed 1.9% lower. The S&P 500 briefly traded above its 50-day moving average before falling below it. Only the health care (+0.5%), energy (+0.9%), and materials (+0.1%) sectors closed higher, while the real estate sector experienced the largest decline, dropping 4.1%.

Monday's Market Activity

The stock market started strong but faded by the close. The S&P 500 and Nasdaq Composite benefited from interest in mega-cap and chipmaker stocks. NVIDIA (NVD) outperformed, trading up as much as 5.3% at its high, driven by AI enthusiasm and strong Q4 revenues reported by Foxconn.

Monday's Economic Data

• Factory orders decreased by 0.4% in November, with transportation equipment showing particular weakness.
• December's S&P Global US Services PMI was 56.8, indicating an accelerated pace of expansion compared to November.

Tuesday's Market Activity

Initial gains in the stock market faded as participants reacted to economic data releases. Treasury yields increased, with the 10-year yield settling at 4.68%, seven basis points higher than the previous day.

Tuesday's Economic Data

• November Trade Balance was -$78.2 billion, reflecting an import surge possibly linked to anticipated tariff policies.
• December ISM Services PMI was 54.1%, with the Prices Index above 60.0% for the first time since January 2024.
• November JOLTS - Job Openings rose to 8.098 million.

Wednesday's Market Activity

The stock market experienced a choppy session, with the S&P 500 closing 0.2% higher, the Dow Jones Industrial Average up 0.3%, and the Nasdaq Composite down 0.1%. The Treasury market remained mostly unchanged.

Wednesday's Economic Data

• Weekly MBA Mortgage Applications decreased by 3.7%.
• December ADP Employment Change was 122,000, below consensus.
• Weekly Initial Claims dropped to 201,000, indicating low layoff activity.
• November Wholesale Inventories decreased by 0.2%.
• November Consumer Credit contracted by $7.49 billion.

Friday's Market Activity

Major equity indices saw significant declines due to rising market rates following labor market data. Concerns over inflationary pressures and the potential for prolonged higher interest rates contributed to negative market sentiment. Ten of the 11 S&P 500 sectors ended in the red.

Guru Stock Picks

Tweedy Browne International Value has made the following transactions:

• Reduce in LSE:BA. by 27.23%
• Sold out in XPAR:UBI
• Add in TSE:7270 by 48.26%
• New position in TSE:7839

Today's News

Quantum computing stocks faced a turbulent session, with Quantum Computing (QUBT, Financial) shares dropping 9%, Rigetti (RGTI, Financial) down 11.3%, Aqrqit Quantum (ARQQ, Financial) also falling 11.3%, and D-Wave Quantum (QBTS, Financial) declining 9.7%. IonQ (IONQ, Financial), however, bucked the trend with a 7% rise after CEO Peter Chapman announced expectations of high-end forecast bookings and projected revenue nearing $1 billion by 2030.

Delta Air Lines (DAL, Financial) experienced a significant boost in stock price, surging over 9% despite operational disruptions in Atlanta due to a winter storm. The positive sentiment was fueled by the airline's 2025 guidance exceeding expectations, with CEO Ed Bastian highlighting strong demand trends and predicting a record year for the company.

Verizon (VZ, Financial) reported successful containment of the Salt Typhoon cyber attack, which had targeted a small number of individuals involved in government or political activities. The telecom giant assured that no further threat actor activity had been detected, leading to a stable outlook for the company.

Estée Lauder (EL, Financial) saw a modest increase of 0.8% amid takeover and activist speculation. Reports suggested renewed interest from potential buyers and activist investors, following previous indications of interest from Nelson Peltz (Trades, Portfolio) and internal board tensions.

HP Enterprise (HPE, Financial) gained over 3% after securing a $1 billion deal to provide servers for Elon Musk's social network X. The agreement, reached late last year, positions HPE favorably against competitors like Dell Technologies (DELL) and Super Micro Computer (SMCI).

Hershey (HSY, Financial) announced CEO Michele Buck's intention to retire by June 2026, prompting a 1.04% rise in shares. The board has initiated a search for her successor, considering both internal and external candidates, as the company continues to navigate potential takeover interests from Mondelez International (MDLZ).

Eli Lilly (LLY, Financial) is reportedly in advanced talks to acquire Scorpion Therapeutics for up to $2.5 billion. The acquisition would include an initial $1 billion payment, with additional payments contingent on milestone achievements, enhancing Lilly's oncology portfolio.

SpringWorks Therapeutics (SWTX) advanced 6.3% amid renewed takeover speculation, with interest from potential buyers, including Swiss pharma firms and Abbvie (ABBV), as the company prepares for the JPMorgan healthcare conference.

Meta (META) announced the termination of its diversity, equity, and inclusion programs, as well as its third-party fact-checking initiative, aligning its policies with those of Elon Musk's X. The changes come ahead of Donald Trump's second presidential term, suggesting strategic positioning by the company.

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