U.S. stock indices experienced a mix of results on Monday, as increased performance by oil and gas companies helped to balance out declines in major technology stocks such as Nvidia. The S&P 500 managed to rise by 0.2% after previously falling 0.9%, while the Dow Jones Industrial Average increased by 358 points, or 0.9%. In contrast, the Nasdaq composite dropped by 0.4%, primarily due to the underperformance of significant tech firms.
Over the past month, stock values have faced pressure, with the S&P 500 ending its fourth losing week in five as investors began to adjust their expectations regarding any potential relief from the Federal Reserve through interest rate cuts this year. These reductions could stimulate the economy, and last year, the U.S. stock market reached record highs amidst assumptions that further cuts would be forthcoming after the Fed began lowering rates in September. However, inflation rates have consistently remained above the Fed’s 2% target, with recent reports indicating that the robust U.S. economy may not require significant assistance. This has sparked questions regarding whether the Fed will implement even a single interest rate reduction in 2025.
High interest rates tend to put pressure on various investment prices, with those considered overvalued often taking the hardest hits. Nvidia saw a 2% decline, making it the largest drag on the S&P 500, although this dip represents only a modest part of the substantial gains the company has seen in recent years as a result of the burgeoning artificial intelligence sector. Additionally, Apple dropped by 1%, and Meta Platforms experienced a 1.2% fall, contributing to the overall market declines given their prominence on Wall Street.
In a notable downturn, Moderna’s stock tumbled by 16.8%, marking the largest loss within the S&P 500 for the day. The company’s disappointing revenue forecast for the upcoming year, which fell short of analysts’ predictions, combined with a slowdown in COVID-19-related sales, has led Moderna to accelerate its cost-cutting initiatives. Similarly, Macy’s stock fell by 8.1% after the retailer indicated that it would likely report revenue for the last three months of 2024 at or just below its previously predicted lower end. This could serve as an unsettling indication regarding consumer spending trends for the holiday season, following a period of strong expenditures by U.S. households that have thus far bolstered the economy against recession.
Edison International also saw a significant drop of 11.9%, attributed to ongoing wildfires impacting its Southern California Edison utility operations. The company is under scrutiny as fire agencies are investigating whether its equipment may have contributed to the ignition of the Hurst fire.
On a more positive note, oil and gas companies thrived as oil prices rose. A barrel of U.S. crude climbed by 2.9% to $78.82, while Brent crude increased by 1.6% to $81.01, following the Biden administration’s announcement of expanded sanctions against Russia’s energy sector. Exxon Mobil saw an increase of 2.6%, and Valero Energy gained 4.9%. Moreover, shares of U.S. Steel jumped by 6.1% after the Biden administration extended the deadline for the company to divest from its proposed acquisition by Japan’s Nippon Steel to June.
Intra-Cellular Therapies experienced a remarkable surge of 34.1% after Johnson & Johnson announced its intention to acquire the biopharmaceutical company for $132 per share in cash. Johnson & Johnson’s stock rose as well, by 1.7%. In summary, the S&P 500 gained 9.18 points, closing at 5,836.22. The Dow Jones Industrial Average increased by 358.67 to 42,297.12, while the Nasdaq composite fell by 73.53 to settle at 19,088.10.
Regarding the bond market— a significant influence on Wall Street’s dynamics— Treasury yields climbed slightly. The yield on the 10-year Treasury rose to 4.78% from 4.76% late in the previous week, marking a continuous increase over the past month from below 3.65% in September. Strong economic data in the U.S. has contributed to this rise, along with concerns about tariffs and other policies that could drive inflation higher amidst economic growth.
A report scheduled for release on Wednesday will likely provide new insights into the bond market by detailing the latest monthly inflation figures affecting U.S. consumers. Economists predict that inflation may have edged up to 2.8% in December from 2.7% in November. According to strategists at Morgan Stanley, “Rates remain the most important variable for equity market direction.” In addition to inflation data, this week will see earnings reports from major financial institutions such as Bank of America and JPMorgan Chase, marking the beginning of the earnings reporting season.
Should Treasury yields continue to rise, it may necessitate either reductions in stock prices or an increase in profit growth among companies to balance the ramifications. Internationally, stock exchanges experienced declines across Europe and Asia, with Hong Kong falling by 1% and Shanghai by 0.2%, despite China’s December export growth exceeding expectations as factories rushed to meet orders ahead of potentially higher tariffs threatened by Trump.
