The S&P 500 Index ($SPX) (SPY) Monday closed down -1.46%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.97%. March E-mini S&P futures (ESH25) are down by -1.38%, and March E-mini Nasdaq futures (NQH25) are down sharply by -2.83%.
Stock indexes on Monday settled mixed, with the S&P 500 sinking to a 1-week low and the Nasdaq 100 plunging to a 1-1/2 week low. However, the Dow Jones Industrials climbed to an 8-week high.
Monday’s plunge in technology stocks was a drag on the overall market. Chip stocks and AI-related companies plummeted Monday because China’s artificial intelligence startup DeepSeek appears to provide comparable performance to Western chatbots at a fraction of the price. The latest model of DeepSeek, released last week, is widely seen as competitive with those of OpenAI and Meta Platforms and is now at the top of Apple’s App Store rankings. It also questions the sky-high valuations for AI-related stocks and the massive research and developmental spending business model. Jeffries said Monday that “concerns have immediately emerged that DeepSeek could be a disruptor to the current AI business model, which relies on high-end chips and extensive computing power.”
Stocks were also rattled after President Trump on Sunday threatened to impose tariffs on Colombia over a dispute about deported migrants but later withdrew the threat after reaching a deal with Colombia.
The Dow Jones Industrials moved higher on Monday, led by strength in defensive healthcare stocks as Johnson & Johnson rose more than +4%. Also, Apple and Salesforce rallied more than +3% to help lift the Dow.
Signs of weakness in China’s economy are bearish for global growth prospects. The China Jan manufacturing PMI unexpectedly fell -1.0 to 49.1, weaker than expectations of no change at 50.1 and the steepest pace of contraction in 5 months. Also, the Jan non-manufacturing PMI fell -2.0 to 50.2, weaker than expectations of no change at 52.2.
Monday’s US economic news was better than expected and supportive of stocks. The Dec Chicago Fed national activity index rose +0.16 to a 7-month high of 0.15, stronger than expectations of -0.06. Also, Dec new home sales rose +3.6% m/m to 698,000, stronger than expectations of 675,000. In addition, the Jan Dallas Fed manufacturing outlook survey unexpectedly rose +9.6 to a 3-1/4 year high of 14.1, versus expectations of a decline to 0.
The markets will look at the results of the 2-day FOMC meeting that ends on Wednesday and post-meeting comments from Fed Chair Powell. Expectations are for the FOMC to keep the fed funds target range unchanged at 4.25%-4.50%.
Earnings season is in full swing as companies report Q4 earnings results. Megacap technology stocks begin reporting earnings this week, with Microsoft and Tesla reporting on Wednesday and Apple reporting on Thursday. According to Bloomberg Intelligence, analysts estimate S&P 500 earnings grew by +7.5% y/y in Q4, the second-highest pre-season forecast in the past three years.
The markets are discounting the chances at 1% for a -25 bp rate cut at the January 28-29 FOMC meeting.
Overseas stock markets on Monday settled lower. The Euro Stoxx 50 fell to a 1-week low and closed down -0.59%. China’s Shanghai Composite Index fell from a 3-week high and closed down -0.06%. Japan’s Nikkei Stock 225 closed down -0.92%.
Interest Rates
March 10-year T-notes (ZNH25) Monday closed up +22 ticks. The 10-year T-note yield fell -9.1 bp to 4.530%. Mar T-notes Monday rallied to a 5-week high, and the 10-year T-note yield tumbled to a 5-week low of 4.496%. Monday’s sharp selloff in stocks prompted safe-haven buying of T-notes. Also, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate fell to a 2-1/2 week low Monday at 2.385%. T-notes maintained their gains on decent demand for the 2-year and 5-year T-note auctions. The Treasury’s $69 billion auction of 2-year T-notes had a bid-to-cover ratio of 2.40, better than the 10-auction average of 2.39. Also, the $70 billion auction of 5-year T-notes had a bid-to-cover ratio of 2.66, better than the 10-auction average of 2.65.
T-notes fell back from their best levels on better-than-expected US economic news. The Dec Chicago Fed national activity index rose more than expected to a 7-month high, and Dec new home sales rose more than expected. Also, the Jan Dallas Fed manufacturing outlook survey unexpectedly rose to a 3-1/4 year high.
European government bond yields Monday moved lower. The 10-year German bund yield fell -3.8 bp to 2.531%. The 10-year UK gilt yield fell to a 3-week low of 4.555% and finished down -4.3 bp to 4.585%.
The German Jan IFO business climate rose +0.4 to 85.1, stronger than expectations of 84.8.
Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at its January 30 policy meeting.
US Stock Movers
Chip stocks retreated Monday after Chinese startup DeepSeek raised questions about the high valuations of the stocks. As a result, Marvell Technology (MRVL) closed down more than -19%, and Broadcom (AVGO) closed down more than -17%. Also, Nvidia (NVDA) closed down more than -16% to lead losers in the Dow Jones Industrials, and Micron Technology (MU) closed down more than -11%. In addition, ASML Holding NV (ASML), Lam Research (LRCX), Applied Materials (AMAT), Advanced Micro Devices (AMD), and KLA Corp (KLAC) closed down more than -5%.
AI and AI infrastructure stocks sold off Monday amid concerns that AI models from Chinese firm DeepSeek could disrupt US technological leadership. As a result, Oracle (ORCL) closed down more than -13%, and Super Micro Computer (SMCI) closed down more than -12%. Also, ARM Holdings (ARM) closed down more than -10%, and Palantir Technologies (PLTR) closed down more than -4%.
Cryptocurrency-exposed stocks moved lower Monday after the price of Bitcoin fell more than -3% to a 1-week low. As a result, Riot Platforms (RIOT) closed down more than 16%. Also, Mara Holdings (MARA) closed down more than -8%, Coinbase Global (COIN) closed down more than -6%, and MicroStrategy (MSTR) closed down more than -2%.
GE Vernova (GEV) closed down more than -21% after Guggenheim Securities downgraded the stock to neutral from buy.
SoFi Technologies (SOFI) closed down more than -8% after forecasting full-year adjusted Ebitda of $845 million-$865 million, well below the consensus of $905.6 million.
Public Service Enterprise Group (PEG) closed down more than -6% after Barclays downgraded the stock to equal weight from overweight.
Akero Therapeutics (AKRO) closed up more than +98% after releasing promising results from a mid-stage trial of its experimental treatment for patients with cirrhosis due to metabolic dysfunction-associated steatohepatitis, a liver disease.
AT&T (T) closed up more than +6% after reporting Q4 adjusted EPS of 54 cents, above the consensus of 50 cents.
Salesforce (CRM) closed up more than +3%, and ServiceNow (NOW) closed up more than +1% after Barclays said both companies “should benefit from cheaper AI models.”
Defensive healthcare and consumer staple stocks rose Monday with the selloff in the broader market. HCA Healthcare (HCA) closed up more than +6%, and Johnson & Johnson (JNJ) closed up more than +4% to lead gainers in the Dow Jones Industrials. Also, Cigna Group (CI) closed up more than +4%, and Colgate Palmolive (CL), PepsiCo (PEP), Procter & Gamble (PG), Coca-Cola (KO), CVS Health (CVS), Kraft Heinz (KHC), Tyson Foods (TSN), and JM Smucker (SJM) closed up more than +3%. In addition, General Mills (GIS), Conagra Brands (CAG), UnitedHealth Group (UNH), and Molina Healthcare (MOH) closed up more than +2%.
Logility Supply Chain Solutions (LGTY) closed up more than +25% after Aptean agreed to acquire the company for $14.30 per share.
Portillo’s (PTLO) closed up more than +7% after Stifel upgraded the stock to buy from hold with a price target of $16.
Crown Castle (CCI) closed up more than +4% after JMP Securities initiated coverage of the stock with a recommendation of outperform and a price target of $115.
American Tower (AMT) closed up more than +3% after JMP Securities initiated coverage of the stock with a recommendation of outperform and a price target of $225.
Waste Management (WM) closed up more than +2% after Scotiabank upgraded the stock to sector outperform from sector perform with a price target of $250.
Earnings Reports (1/28/2025)
Boeing Co/The (BA), BXP Inc (BXP), Chubb Ltd (CB), F5 Inc (FFIV), General Motors Co (GM), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Lockheed Martin Corp (LMT), NVR Inc (NVR), PACCAR Inc (PCAR), Packaging Corp of America (PKG), Royal Caribbean Cruises Ltd (RCL), RTX Corp (RTX), Starbucks Corp (SBUX), Stryker Corp (SYK), Synchrony Financial (SYF), Sysco Corp (SYY).
