Slowing amid optimistic expectations
US stocks faced a wave of corrections on Thursday after an impressive jump the day before. Investors cautiously analyzed fresh economic data and corporate earnings reports, trying to guess what the Federal Reserve will do next regarding interest rates.
Inflation figures released earlier calmed market participants, dispelling concerns about a possible resurgence of price pressure. In addition, strong banking sector earnings on Wednesday became the catalyst for the largest one-day gain in indices since early November.
New Data Adds Uncertainty
However, Thursday brought cautious optimism. Stocks were mixed, reflecting investor hesitancy. Economic data confirmed that Americans continue to spend vigorously and the labor market remains resilient. These factors suggest that the Federal Reserve will likely maintain a gradual approach to rate cuts through 2025.
Market Gainers and Losers
On the corporate front, Morgan Stanley (MS.N) results were a positive sign, with shares rising 4.03% on strong fourth-quarter earnings. M&A activity played a key role in the gains. Meanwhile, Bank of America (BAC.N) lost 0.98% despite forecasting interest income growth in 2025, reflecting challenging market expectations.
Looking Ahead
Investors continue to closely monitor macroeconomic data and corporate results to determine the direction of the market. The current situation highlights the need for a balanced approach, where each new piece of information can become a decisive factor in making investment decisions.
Indices fall: cautious optimism gives way to anxiety
US stock indices ended Thursday on a minor note. The Dow Jones Industrial Average (.DJI) lost 68.42 points (0.16%), falling to 43,153.13. The S&P 500 (.SPX) also fell by 12.57 points (0.21%), ending the session at 5,937.34. And the Nasdaq Composite (.IXIC) showed a more significant fall - 172.94 points (0.89%), closing at 19,338.29.
Signals from the Fed: hope for rate cuts
Investors focused on statements by Federal Reserve member Christopher Waller. He noted that the regulator may begin to cut interest rates faster than expected if inflation continues to decline. This statement caused Treasury yields to decline, reflecting growing expectations for monetary easing.
The yield on the 10-year Treasury note fell by 3.8 basis points, reaching 4.615%. Meanwhile, futures contracts point to a likely 25 basis point cut by the Fed by May 2025.
Tough dynamics: markets seek balance
Stock markets are going through a difficult time after the wave of growth caused by the midterm elections in the US. Although the S&P 500 index showed a decline in four of the previous five weeks, the current week promises to end on a positive note.
However, the resilience of the economy and slowing inflation create a dual effect. On the one hand, they provide grounds for a more gradual rate cut, but on the other, they raise concerns that the Fed will act more cautiously than market participants expect.
Looking Ahead: How Markets Are Adapting to the New Reality
The market continues to balance between signals of monetary easing and the resilience of the economy, which could prolong the period of high rates. Investors are waiting for new data to better understand the outlook for market and monetary policy movements in 2025.
Tariffs and Inflation: The New Administration Raises Questions
Investors are anxiously watching developments around the economic policies of President-elect Donald Trump, who will take office on Monday. The proposed tariff measures, which are actively discussed in Washington, raise concerns that they could lead to increased inflationary pressure in the country.
Trump's nominee for Treasury Secretary Scott Bessent made statements reaffirming the need to preserve the dollar as the world's reserve currency and the independence of the Federal Reserve. At the same time, he stressed the need to tighten sanctions against the Russian oil sector, warning of the risk of "economic catastrophe" if the 2017 tax breaks are not extended until the end of this year.
Corporate News: Dow and Nasdaq Under Pressure
UnitedHealth (UNH.N) shares fell, dragging the Dow down more than 201 points after weak fourth-quarter revenue fell short of analysts' forecasts.
The Nasdaq also suffered significant losses, led by a 4.04% drop in Apple (AAPL.O) shares. Apple is set to lose its position as China's largest smartphone seller to Vivo and Huawei in 2024, according to research firm Canalys, a worrying sign for investors.
New Highs and Lows: Trading Results
Despite the challenges, U.S. stock markets posted both new gains and losses. The S&P 500 posted 21 new 52-week highs and nine new lows. Meanwhile, the Nasdaq Composite posted 58 new highs, but with a noticeable downside bias — 101 new lows.
The ratio of advancers to decliners was 1.81 to 1 on the NYSE and 1.07 to 1 on the Nasdaq, reflecting the advantage of positive moves.
Trading Volumes: Activity Declining
Total trading volume on U.S. exchanges was 14.31 billion shares, below the average of 15.75 billion over the past 20 trading days. The decline in volumes may indicate growing caution on the part of market participants amid expectations of political changes and corporate earnings.
Chinese Markets: Disappointment Despite Growth
Chinese markets ended the week with sluggish dynamics despite the published GDP data that exceeded forecasts. The Celestial Empire's economy showed growth of 5%, reaching Beijing's target for 2024. However, the figures failed to inspire investors who had been expecting more momentum to recover from a period of economic uncertainty.
Japan: Yen Strength Under Pressure on Stocks
Japanese stocks (.N225) also struggled. The key factor was the strengthening yen, which rose above 155 per dollar for the first time in a month. The move raised expectations that the Bank of Japan will hike interest rates at its upcoming meeting, putting additional pressure on export-oriented companies.
MSCI Global Index: False Appearance of Growth
The MSCI Global Equity Index (.MIWD00000PUS) posted its best weekly performance since early November, but the bulk of that gain came on a single day: Wednesday. Then, strong results from major US banks set a confident tone for the earnings season, providing a short-lived surge in optimism.
Political Uncertainty: Trump Inauguration in Focus
As Donald Trump's inauguration approaches, markets remain tense. Investors are concerned that his first speech as US President and possible immediate executive orders could change market sentiment. Potential new tariffs against allies and rivals alike remain a major threat to global trade.
Bond yields: relief for investors
A sharp decline in bond yields, driven by growing expectations of a Federal Reserve rate cut by June, has come as a pleasant surprise to global investors. However, the decline has yet to provide much support to the stock market, which remains cautious.
Dollar weakness: pause after six-week rally
Foreign exchange markets are showing an unusual pattern in recent weeks, with the dollar, which had previously been rising steadily for six weeks, losing momentum and coming under pressure. This change has led traders to focus more on macroeconomic data, which remains a key benchmark for market participants.
Pound and euro find support
The British pound, which had been under heavy pressure, managed to settle higher by the end of the week. The euro is also showing similar dynamics, which has caught the bears by surprise, who had forecast the single currency falling to parity with the dollar. The strengthening of both currencies adds optimism to European markets, which are gradually starting to emerge from the shadow of the US dollar.
Key data: retail sales and inflation
The European economic calendar is eventful today. The UK is to publish retail sales figures for December, which could shed light on the resilience of consumer demand in the face of high inflation. The eurozone is to present its final consumer inflation report for December, which will be an important indicator for assessing the monetary policy of the European Central Bank.
Speech by the head of the Bank of Spain
Attention will also be focused on the speech of the head of the Bank of Spain, Jose Luis Escriva, in Madrid. His speech will focus on the role of central bank independence in the current economic landscape. Escriva is also expected to touch on the current challenges facing financial regulators in the face of turbulent global markets.
Forex Market Outlook
Investors continue to assess changes in the macroeconomic environment that could impact future currency dynamics. Key data released today, as well as rhetoric from financial institutions, will set the direction for major global currencies in the coming weeks.
