Stocks Climb as Semiconductor and Data Storage Firms Drive Gains

US Stock Market Update

Major US stock indices are trading higher today. The S&P 500 has gained 0.32%, the Dow Jones Industrial Average is up by 0.16%, and the Nasdaq 100 has advanced 0.63%. Futures for March E-mini S&P and Nasdaq are also showing positive movement, up 0.33% and 0.66% respectively.

Market Drivers

Chip manufacturers and data storage firms are leading the rally, while mining stocks are also performing well. Copper prices have surged to a record high, fueled by speculation that the US government may impose tariffs on refined copper. This has resulted in a significant influx of copper inventory into the US, raising concerns about potential shortages elsewhere. In December, US copper imports reached their highest level since July.

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Global Market Influence

US equities are benefiting from strength in international markets, with both the Euro Stoxx 50 and Japan’s Nikkei Index reaching new record highs today.

Bond Yields and Inflation

Rising bond yields are putting some pressure on stocks. The yield on the 10-year Treasury note has increased by 2 basis points to 4.18%. This uptick is driven by higher inflation expectations, as the 10-year breakeven inflation rate has climbed to its highest point in a month.

Economic Data and Fed Commentary

Recent US economic releases have been disappointing for equities. The December S&P services PMI was revised down to 52.5 from 52.9. Richmond Fed President Tom Barkin expressed a slightly hawkish outlook, anticipating that tax cuts and deregulation will support growth, but also noting the delicate balance between rising unemployment and persistent inflation. In contrast, Fed Governor Stephen Miran suggested that monetary policy remains restrictive and that significant rate cuts may be warranted this year.

Key Economic Events This Week

• Wednesday: December ADP employment change expected to rise by 48,000; ISM services index forecasted to dip to 52.3; November JOLTS job openings projected to increase to 7.679 million; October factory orders anticipated to fall by 1.1% month-over-month.
• Thursday: Q3 nonfarm productivity expected to grow by 4.7%; unit labor costs seen rising by 0.3%; initial jobless claims forecasted to increase to 211,000.
• Friday: December nonfarm payrolls expected to rise by 59,000; unemployment rate anticipated to edge down to 4.5%; average hourly earnings projected to grow by 0.3% month-over-month and 3.6% year-over-year; October housing starts and building permits both expected to show modest gains; University of Michigan’s January consumer sentiment index expected to rise to 53.5.

Interest Rate Expectations

Markets are currently pricing in a 16% probability of a 25 basis point rate cut at the upcoming FOMC meeting scheduled for January 27-28.

International Markets Overview

• Euro Stoxx 50 reached a new high, up 0.06%.
• Shanghai Composite surged to its highest level in over a decade, closing up 1.5%.
• Nikkei 225 in Japan also set a new record, finishing up 1.32%.

Bond Market Developments

March 10-year Treasury note futures have declined by 4 ticks, with the yield rising to 4.175%. Inflation expectations continue to weigh on bond prices, as the 10-year breakeven inflation rate hit 2.284%, a one-month high. Hawkish remarks from Richmond Fed President Barkin have also contributed to the pressure on Treasuries. However, weaker-than-expected German inflation data has provided some support, boosting German bund prices and limiting losses in US Treasuries.

European government bond yields are trending lower. The 10-year German bund yield has fallen to 2.843%, while the 10-year UK gilt yield is down to 4.487%.

The Eurozone’s December S&P composite PMI was revised down to 51.5. Germany’s December CPI (EU harmonized) rose by 0.2% month-over-month and 2.0% year-over-year, both below expectations. Markets see no chance of a rate hike by the ECB at its next meeting on February 5.

Notable Stock Movers

• Semiconductors & Data Storage: Sandisk has surged over 12%, leading S&P 500 gainers. Microchip Technology is up more than 7% after raising its Q3 sales outlook. NXP Semiconductors and Texas Instruments have both gained over 4%, while Micron Technology and Lam Research are up more than 3%. Applied Materials, Marvell Technology, Seagate Technology, Qualcomm, and KLA Corp have each advanced over 2%.
• Mining: Silver and copper prices are climbing, with Hecla Mining up over 4% and Freeport McMoRan up more than 3%. Newmont Mining, Barrick Mining, and Coeur Mining have also posted gains above 1%.
• Data Center Cooling: Shares of companies in this sector are under pressure after Nvidia’s CEO announced new chip cooling technology. Modine Manufacturing has dropped over 14%, Trane Technologies is down more than 8%, Johnson Controls International has fallen over 7%, and Carrier Global and Vertiv Holdings are each down more than 3%.
• Other Movers:
  • Aeva Technologies jumped over 32% after its 4D LiDAR was chosen for Nvidia’s autonomous vehicle platform.
  • OneStream rose more than 25% amid buyout talks with Hg.
  • Oculis Holdings AG climbed over 11% following FDA breakthrough therapy designation for its optic neuritis treatment.
  • Zeta Global Holdings advanced more than 6% after announcing a partnership with OpenAI.
  • Vistra Corp. gained over 3% after agreeing to purchase 10 natural gas power plants for about $4 billion.
  • Core Scientific rose more than 2% after BTIG upgraded the stock to a buy rating.
  • American International Group fell over 6% after announcing CEO Zaffino’s retirement and his replacement by Eric Andersen of Aon Plc.
  • Equifax and TransUnion both declined over 5% following critical comments from the FHFA Director regarding credit bureau pricing.

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