The Magnificent Seven Selloff and Small-Cap Stocks Rise, Company News and Geopolitics
Stock market news
• The tone in stock markets was decidedly weak by the end of the week, with Chinese markets getting little support from GDP data that beat expectations and hit Beijing’s 2024 growth target of 5%. Japanese stocks are also struggling with the yen strengthening above 155 per dollar for the first time in nearly a month, as traders increase bets on a Bank of Japan rate hike next week.
MSCI’s index of global stocks is still on track for its best week since early November, but the rally is really a one-day story – Wednesday, when U.S. bank results gave the earnings season a major boost.
• Yesterday, the entire Magnificent Seven came under pressure from sellers. The reaction to fresh bank reports was already neutral.
But there was interest in small-cap companies. Today is the expiration of monthly options. The result is that neither bulls nor bears have enough strength to take the market out of the consolidation zone. It seems that investors need more data on the reporting season. The dollar weakened slightly on the decline in the yield on 10-year US government bonds to 4.6% per annum. Which helped Bitcoin return above $101 thousand.
• There will likely be caution around the world as Donald Trump's inauguration as US president on Monday looms large and could set off a bombshell not just in his speech but in any immediate executive orders the president issues, which could include huge tariffs on friend and foe alike.
• The sharp drop in bond yields, driven by a rebound in bets on a Fed rate cut by June, should come as a relief to global investors, although recent market action suggests it has done little to support equities.
Macroeconomics remains a focus for both fixed-income and currency markets, with the dollar lagging – an unusual position after six weeks of gains against a basket of other major currencies.
• The struggling pound appeared to find support this week, as did the euro, irritating bears who believed a fall to parity with the dollar could be inevitable early in the week.
• Biden: Members of Congress should not trade stocks. Shout out to Democrat Nancy Pelosi. Although both Democrats and Republicans actively trade.
• Southwest Airlines (LUV) faces potential civil penalties from the Department of Transportation for allegedly violating rules regarding realistic flight schedules. The DOT alleges that Southwest has “chronically late flights,” meaning flights that arrive more than 30 minutes late more than 50% of the time.
• AbbVie (ABBV) may scale back its investment in psychiatric drug development after its acquisition of Cerevel and the failure of a key in-licensing candidate. Even so, AbbVie remains open to taking calculated risks in its portfolio, CEO Robert Michael said. The company plans to book a $3.5 billion impairment charge related to the failed drug.
• Twenty-four years after its founding, Jeff Bezos' Blue Origin has successfully launched its own rocket into orbit for the first time in history. The company's 325-foot-tall New Glenn Rocket successfully launched from Florida at night for the first time.
Elon Musk: Congratulations on reaching orbit on your first try.
• China wants to buy the decaying Volkswagen factories in Germany, the buyers could be Chery or BYD. Chinese businessmen can get ready-made capacities in Europe plus bypass high duties. After all, the cars from these factories will already be “German”.
• LinkedIn is launching new AI tools to help with job searches and recruitment. They will be available for free, and an extended version has been created for paid users.
• Investors shun French markets as political risk lingers - Bloomberg French assets have yet to recover from the blow they suffered more than six months ago when President Macron called snap elections. The CAC 40 stock index has lagged several other major European indexes this year, and the cost of insuring the debt against default is rising.
• Apple (AAPL) is losing its leadership in China. Quarterly iPhone sales fell by 25%, Reuters writes, citing Canalys data.
At the end of the year, budget smartphone maker Vivo took 17% of the market in China, followed by Huawei with 16% and Apple with 15%. This indicates growing pressure from local manufacturers.
• Fed Chairman Waller said another rate cut is possible in the first half of 2025 - Bloomberg. The Fed could cut rates sooner and faster than expected if the disinflation trend continues.
• UnitedHealth Group (UNH) suffered a rare quarterly earnings miss in its fourth quarter, sending its stock price down 6%. Despite the loss, the company’s earnings beat expectations. The announcement comes amid increased scrutiny of the insurance industry following the recent tragic death of the CEO of UNH’s insurance unit. The broader healthcare sector, including competitors like Humana (HUM) and CVS Health (CVS), saw similar declines.
UNH’s full-year 2024 care ratio came in at 85.5%, below the consensus estimate of 85.1%. Analysts say the upward trend in care ratio could weigh on UNH shares well into 2025.
• Symbotic (SYM) announced it will acquire Walmart’s (WMT) advanced systems and robotics business for $200 million, with potential additional cash consideration of up to $350 million. The deal could increase Symbotic’s order book by more than $5 billion and expand its market reach to more than $300 billion in the U.S. The acquisition strengthens the partnership between Symbotic and Walmart to advance automated supply chain solutions.
• Bank of America (BAC) reported strong fourth-quarter profit, driven by higher profits in its consumer banking and wealth management segments. The bank issued a strong 2025 outlook, expecting growth in net interest income and operating leverage. BAC’s positive outlook is supported by strong growth in deposit and loan revenue, creating a promising outlook for next year. BAC shares fell 1% yesterday.
• US Bancorp (USB) shares fell 5.6% yesterday despite fourth-quarter profit beating expectations.
The bank's 2025 outlook points to modest revenue growth and stable net interest income. USB's focus on operational efficiency and positive leverage are expected to support its financial performance going forward.
• Reliance Industries, controlled by billionaire Mukesh Ambani, posted slightly better-than-expected quarterly profit. Its gains from its telecom and retail units offset volatility in its petrochemicals business.
• Wolfe Research downgraded AMD shares to Market Perform from Buy, arguing the company could be losing its competitive edge. AMD shares fell 1% yesterday.
• Shares of aerospace services provider FTAI Aviation (FTAI) are up 2% in premarket trading. They were up 3% yesterday.
• On Wednesday, research firm Muddy Waters (a short seller) released a report on FTAI that, among other things, claimed that whole engine sales were being characterized as module sales to inflate reported volume, and that some expenses were being pushed to the income statement to inflate EBITDA margins.
But other analysts defended FTAI.
• China Vanke could be seized by authorities, Bloomberg observer believes. A top executive of China Vanke Co. has been detained by police, and the Chinese real estate giant could be seized by authorities.
• Oil falls on prospect of Trump easing sanctions against Russia - Bloomberg.
• TSMC's upbeat forecast fuels hopes for AI spending in 2025 Taiwan Semiconductor Manufacturing Inc. forecast quarterly sales and capital spending ahead of analysts' estimates, fueling hopes that spending on artificial intelligence hardware should remain robust in 2025.
TSM shares rose 4% yesterday.
• European luxury shares jump on record quarterly sales at Richemont Cartier parent Richemont reported record quarterly sales, raising investor hopes that the high-end sector is finally recovering from its slump.
• TikTok CEO Plans to Attend Trump's Inauguration With TikTok's fate hanging in the balance, TikTok CEO Sho Chu plans to attend President-elect Donald Trump's inauguration on Monday, The New York Times reports.
• Embraer (ERJ) aims to sell planes like Boeing and Airbus. Brazilian planemaker Embraer SA is keeping its big rivals running and deliveries on track.
• U.S. defense contractor Anduril Industries is preparing to build a massive, state-of-the-art manufacturing complex in central Ohio - AP. It will add 4,000 jobs to the growing workforce in the region.
• Trump upended trade once and intends to do it again with new tariffs.
• Morgan Stanley profits surged on increased deal volume and stock sales.
• Polestar expects profitability to be delayed by weaker demand for electric vehicles and worsening competition.
• TikTok users in US despair as Bytedance waves 'white flag'
• BofA beat earnings expectations on trading growth and expects higher interest income in 2025.
• Point72's new AI fund has raised about $1.5 billion after posting double-digit gains, sources say
• Target revises holiday sales forecast due to strong demand for apparel and toys.
• Carlyle is lining up bankers for a possible sale of UK fund chain Calastone, sources say.
• Google signs deal to buy carbon removal credits from Indian farms.
• US Bancorp reports higher fourth-quarter profit on higher fee income.
• Rothschild &Co Italia appoints Irving Bellotti as new CEO.
• PNC Financial's profit rises on higher interest income and lower rainy day reserves.
• Morgan Stanley's profit more than doubled on deals and stock sales.
• BofA earnings beat expectations on trading growth, higher interest income expected in 2025
• M&T Bank's fourth-quarter profit rose 41% on higher fee and commission income.
• Carlyle is lining up bankers for a possible sale of UK fund chain Calastone, sources say.
• Kyrgyz bank Keremet files appeal after US sanctions imposed.
• India's Axis Bank failed to post a profit due to bad loan provisions and slow lending growth.
• British lenders predict a weakening in demand for mortgages, a Bank of England survey shows.
• Today's European calendar sees the release of UK retail sales data and final eurozone consumer inflation data, both for December.
- Bank of Spain Governor José Luis Escriva delivers a speech on the independence of the central bank in Madrid.
- Wall Street Income includes State Street and Citizens Financial Group.
- Monday will be a holiday in the United States in honor of Martin Luther King Jr. Day.
Key events that could impact markets on Friday:
- UK retail sales (December)
- Eurozone final CPI (December)
- Speech by Bank of Spain Governor Escriva
- US earnings from State Street, Citizens Financial Group
Fundamental news
• U.S. retail sales rose modestly last month as strong holiday shopping boosted the economy.
Americans increased their spending at retail stores and restaurants last month, a clear sign that consumers are still able and willing to shop. Retail sales rose 0.4% in December from the previous month, the Commerce Department reported Thursday, though that was less than the year-earlier December.
Initial jobless claims for the week ended Jan. 11 rose 14,000 to 217,000, slightly above the consensus estimate.
• The four-week moving average fell, indicating stability in the labor market. New jobless claims were lower than expected, indicating that employment is holding up despite the rise in initial claims.
• "The island is not for sale": The Danish Prime Minister discussed the Greenland issue with Trump. She reportedly repeated the words of Greenland Prime Minister Mute Egede that the island is not for sale and must decide on its own independence.
• 'UN stands ready to support': Guterres welcomed the ceasefire agreement in Gaza. "It is vital that this ceasefire removes significant security and political obstacles to the delivery of aid to Gaza." He also praised the mediators - Egypt, Qatar and the United States - for their "committed efforts in achieving this agreement."
• Power in the US is being concentrated “in the hands of a very small number of super-rich people,” a dangerous trend - Biden Biden
also called for changing the US Constitution so that presidents cannot escape responsibility for crimes committed during their term.
• Poland to cut Russian LNG imports by 80% due to sanctions - Reuters. Russian LNG imports will fall to about 20,000 metric tons per month, compared with the 2024 average of 100,000 tons per month.
To compensate for the losses, Poland is increasing LNG imports through its ports and transport from Germany and the Netherlands.
• Canadian Prime Minister Candidate Vows to Reverse Capital Gains Tax Change - Bloomberg. Pierre Poulivier, leader of Canada's Conservative Party, is promising to reverse the increase in Canada's capital gains tax and also to repeal the personal income tax.
• The EU has placed bonds for 11 billion euros. The European Commission has placed two bond issues for a total of 11 billion euros. The funds raised will be used to finance the EU's political programs, primarily NextGenerationEU and support for Ukraine.