Tech Powered Rally Lifts U.S. Stocks as Investor Shift Focus Away from Fed

Barry Adams
18 Jan, 2024
New York City

A tech-powered rally on Wall Street lifted broader indexes back-to-back after two days of selloff.

The S&P 500 index and the Nasdaq Composite traded higher after semiconductor and travel-related stocks led the gainers in Thursday's trading.

Investors bid up stocks after the latest weekly jobless claims indicated persistently resilient labor market conditions, and housing market activities also showed strong activity in the sector.

Despite the recent drumbeat of policymakers pushing against the near-term rate-cut possibilities, investors focused on resilient consumer spending, the housing market, and supporting labor market conditions.

Marriott International, Hilton Worldwide, Boston Scientific, Intuitive Surgical, and ServiceNow traded at their all-time highs.

The yield on the 10-year Treasury note rose above 4.1% after retail sales were ahead of market expectations, stoking speculation that the Federal Reserve may hold rates steady.

The market has rallied nine weeks in a row since early November 2023 in the hopes that the Federal Reserve is likely to lower rates sooner than expected and that the first rate cut may start as early as March.

However, investors have been dialing down on those expectations after policymakers carried out concerted efforts in the last two weeks, suggesting that market enthusiasm may be misplaced.

But the steady flow of economic data covering inflation, weekly jobless claims, GDP growth, retail sales, building permits, and existing home sales in the last three weeks has kept investor confidence high.

Moreover, quarterly results from banks and financial services companies have also supported the enthusiasm for corporate earnings.

 

Jobless Claims Show Persistent Tight Labor Market Conditions

Initial jobless claims for the week ending January 13 declined 16,000 to 187,000, the U.S. Department of Labor reported Thursday. 

Continuing claims fell by 26,000 to 1,806,000 in the previous week, suggesting persistent tight labor market conditions. 

The four-week moving average, which reduces week-to-week volatility, decreased by 4,750 to 203,250.

 

U.S. Indexes and Yields

The S&P 500 index increased 0.2% to 4,746.36, and the Nasdaq Composite rose 0.5% to 14,933.75.

The yield on 2-year Treasury notes increased to 4.33%. 10-year Treasury notes advanced to 4.09%, and 30-year Treasury bonds edged up to 4.32%.

WTI crude oil increased $1.54 to $74.06 a barrel, and natural gas prices decreased 18 cents to $2.68 a thermal unit.

Gold increased by $14.03 to $2,019.77 an ounce, and investors debated the future interest rate path

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.35.

 

U.S. Stock Movers

Discover Financial dropped 9.6% to $97.25 after the credit card company reported a higher net charge-off in its latest quarterly results.

Revenue in the fourth quarter increased 13% to $4.2 billion from $3.7 billion, net income declined 62% to $388 million from $1.0 billion, and diluted earnings per share dropped to $1.54 from $3.74 a year ago.

Total net charge-off jumped 198 basis points to 4.11%, reflecting "seasoning of recent vintages with higher delinquency trends."

Apple Inc. increased 2.2% to $186.64 after the stock received an upgrade to "buy" from "neutral" from Bank of America.

The bank said that the company is likely to benefit from a multi-year hardware upgrade cycle supported by generative AI features.

The bank sees more than 20% upside for the stock from the current price level.

Alcoa Inc. decreased 1.0% to $26.80 after the aluminum company reported a narrower-than-expected quarterly loss of 56 cents per share.

Sales in the fourth quarter were flat at $2.6 billion, net loss attributable to shareholders declined to $150 million from $350 million, and diluted loss per share fell to 84 cents from $2.24 a year ago.

Alumina production decreased 1% sequentially to 2.79 million metric tons on lower production from the Australian refineries.

In aluminum, Alcoa produced 541,000 metric tons, a 2% increase from the third quarter's strong output.

Taiwan Semiconductor soared 6.6% to $109.83 after the company reported quarterly results that exceeded market expectations.

Revenue in the fourth quarter was flat at NT$ 625.5 million, but net income declined 19.3% to NT$ 237.8 million from NT$ 295.9 million, and diluted earnings per share dropped to NT$ 9.21 from NT$ 11.41 a year ago.

In U.S. dollars, fourth quarter revenue was $19.62 billion, which decreased 1.5% year-over-year but increased 13.6% from the previous quarter.

The company guided first quarter 2024 revenue between $18.0 billion and $18.8 billion, based on the exchange rate of 31.1 NT for one U.S. dollar.

Gross margin in the quarter is expected to range between 52% and 54%, and operating margin between 40% and 42%.

Capital expenditure in 2024 is estimated to range between $28 billion and $32 billion.

 

European Markets Halt a 3-day Slide

European markets traded higher after falling for three days in a row amid rising tensions in the Middle East and fading rate expectations.

Benchmark indexes in Paris, Frankfurt, and London advanced in Thursday's trading, and investors reviewed car registration data in the European Union and the eurozone current account surplus.

 

Eurozone Current Account Surplus Widens

The current account surplus in the Euro Area in November soared to Є31.7 billion from a revised Є6.6 billion a year ago, Eurostat reported Thursday.

The goods surplus rose to Є38.1 billion from Є7.5 billion, and the services surplus increased to Є12.6 billion from Є7.9 billion from a year ago, respectively.

For the January–November period, the currency union's surplus widened to ±225.8 billion from a deficit of ±90.2 billion in the same period in 2022.

 

EU Passenger Car Registration Rises In 2023

Passenger car registration in the European Union in December decreased for the first time after rising for 16 months in a row, the European Automobile Manufacturers Association reported Thursday.

December passenger car registration declined 3.3% to 867,052 units, driven by a 23% plunge in Germany.

However, registrations rose in France by 14.5% and in Spain by 10.6%.

For the 2023 full year, passenger car registration increased 13.9% to 10.5 million, driven by an increase in all EU markets except for a fall of 3.4% in Hungary.

Double-digit sales were recorded in most countries, including 18.9% in Italy, 16.7% in Spain, and 16.1% in France, the three largest markets in the Union.

Petrol cars retained their top spot with a 35.3% market share, followed by hybrid-electric cars with a share of 25.8% and battery-powered cars with 14.6%, surpassing diesel cars with 13.6%.

 

Europe Indexes and Yields

The DAX index increased 0.8% to 16,567.35, the CAC-40 index rose 1.1% to 7,401.35, and the FTSE 100 index increased 0.2% to 7,459.09.

The yield on 10-year German bonds edged up to 2.28%; French bonds inched higher to 2.81%; the UK gilts edged higher to 3.94%; and Italian bonds increased to 3.90%.

The euro edged higher to $1.089, the British pound inched lower to $1.268, and the U.S. dollar eased to 86.44 Swiss cents.

Brent crude advanced $0.98 to $78.86 a barrel, and the Dutch TTF natural gas decreased by €0.19 to €27.89 per MWh.

 

Europe Stock Movers

Automakers were in focus after car registration in the European Union declined for the first time in December after rising for 16 months in a row.

Volkswagen Group increased 0.2% to €108.90, Mercedes-Benz Group gained 0.8% to €59.78, Renault gained 2.2% to €34.53, Peugeot Invest SA added 0.8% to €99.40, and Stellantis NV inched up 0.6% to €19.76.

Richemont soared 9.3% to CHF 115.20 after the Swiss luxury-goods company reported a rebound in sales in its fiscal third quarter.

Telefonica SA decreased 0.7% after the Spanish telecom company completed the sale of a green bond worth €1.75 billion.

J. Sainsbury plc added 0.5% to 286.70 pence after the company said it is exploring business alternatives for its financial service unit.

BHP Group decreased 0.6% to 2,369.85 pence after the company said it may write down assets in its nickel mining unit.

Kier Group advanced 7% to 120.0 pence after the construction company said performance in its first half of the fiscal year was better than in the comparable period in the previous year.

Watches of Switzerland Group plunged 31% to 399.40 pence after the UK-based retailer lowered its fiscal year 2024 guidance.

 

Mixed Markets In Asia as Investors Navigate Rate Uncertainties 

In Asia, market indexes in China continued to drift lower, and indexes in Japan and Korea advanced.

Tensions remained high in the Middle East, and Pakistan recalled its ambassador from Tehran and expelled the Iranian envoy in Islamabad, a day after Iran carried out a missile strike in Panjgur, Balochista

The U.S. military carried out strikes on 14 missiles that were ready to be launched from Yemen by Houthi rebels, the Central Command said in a post on its social media channel on X.

In Hong Kong, the Hang Seng index rebounded 0.5% to 15,343.88 after falling in the previous four sessions in a row and extended 2024 losses to 10%, the worst start since 2016.

Alibaba Group, Baidu, and Netease advanced between 1.4% and 2.0% amid a rise in tech stocks.

In mainland China trading, the CSI 300 index declined 0.6% to 3,208.91 as foreign investors continued to lower their holdings of Chinese stocks on protracted property market woes and a weakening economic growth backdrop.

The Nikkei 225 index in Tokyo declined 0.1% to 35,440.01 after investors continued to unwind bets on rate-cut hopes in the U.S. and Europe and focus on domestic corporate earnings.

The Nikkei extended losses to the third day in a row, but tech stocks rebounded after falling in two previous sessions and the yen struggled near 148 against the U.S. dollar.

Core machinery orders in Japan declined seasonally by 4.9% from the previous month in November to 816.7 billion yen, the Cabinet Office said on Thursday.

That was well shy of expectations of a 0.8% decrease following the 0.7 percent increase in October.

On a yearly basis, orders declined 5.0% in the month after falling 2.2% in the previous month.

Advantest jumped 3.5% to ¥5,351.0, Screen Holdings added 0.5% to 12,895.0, and Tokyo Electron gained 0.7% to ¥26,575.0.

SoftBank declined 0.8% to ¥6,471.0, and Uniqlo operator Fast Retailing edged slightly lower, 0.07% to ¥38,720.0.

Elsewhere in the region, the KOSPI index in Seoul added 0.2% to 2,440.38, and the ASX 200 index in Sydney fell 0.6% to 7,346.50.

 

India Stocks Extend Losses After Mixed Quarterly Results

Stocks in Mumbai edged lower for the second day in a row, and investors confronted elevated tensions in the Middle East, mixed corporate earnings results, and the latest comments from RBI Governor Das.

Reserve Bank of India Governor Shaktikanta Das said economic growth in the current fiscal year is likely to reach 7%, and the central bank is confident of inflation reaching its target rate of 4% in the near term.

Governor Das commented on the sidelines of the World Economic Forum in Davos, Switzerland, an annual four-day gathering of 2,800 business and world leaders and policymakers.

Governor Das added that when inflation is close to 6%, it is premature to talk about lowering the interest rate, and the central bank's policy has to remain "actively disinflationary."

The central bank also plans to build its foreign exchange reserve from the current level of $617 billion to meet sudden and unpredictable capital outflows witnessed during the global bond market jitters of 2013, when the U.S. Federal Reserve announced its plan to taper off its monetary stimulus.

 

India Targets $100 Billion In Annual FDI Flow 

India is looking to attract more foreign investment as the country's economic growth picks up and the government ramps up infrastructure investment.

India is looking to increase its foreign direct investment to $100 billion over the next few years as the government targets electronics manufacturing and advanced technology-driven projects, Information Technology Minister Ashwini Vaishnaw said on the sidelines of the World Economic Forum in Davos, Switzerland. 

India attracted $71 billion in the financial year ending in March 2023 and has attracted $66 billion in the fiscal first half ending in September 2023.