In the wee hours of Tuesday, U.S. equity futures remained subdued, barely budging after a tech-driven rally. The Dow Jones Industrial Average and S&P 500 futures inched up by a mere 0.2%, while Nasdaq futures decided to stay put. This tranquility follows a tech stock surge on Monday, ignited by Microsoft's audacious $80 billion pledge to AI-enabled data centers for fiscal 2025. As the day progresses, investors will be watching the JOLTS report and the ISM services index, both set to release at 10 a.m. The Institute for Supply Management Services index is expected to tick up to 53.5 in December from 52.1, indicating a slight boost in the service sector. Meanwhile, job openings, according to the U.S. Department of Labor's JOLTS report, are forecasted to dip marginally to 7.73 million in November from 7.74 million. Richmond Fed President Tom Barkin is also slated to speak at 2 p.m. ET.
Wall Street is tiptoeing into the trading day, with Nvidia stealing the spotlight. The tech giant is up 2% in pre-market trading and is ambitiously eyeing the throne of global market capitalization, potentially unseating Apple. The buzz is all about Nvidia's latest graphics cards, which promise to supercharge AI development on personal computers, leaving analysts in a tizzy.
Yesterday's market performance was a testament to the power of a compelling narrative. Investors, who often pride themselves on rationality, are not immune to a good story. And yesterday, they got a double feature: the drama of customs surcharges and the saga of technological innovation. In the first act, the Washington Post reported that Donald Trump had softened his stance on tariffs. Instead of blanket taxes, only critical imports would be targeted. This news was a boon for the automotive and luxury sectors, sending France's CAC40 index—heavy with luxury stocks—up 2.2%, marking its best day since late September. But the plot thickened when Trump denied the report, dismissing it as "fake news." Yet, the market, ever the optimist, chose to cling to the initial, more favorable narrative. Rumors suggest the Trump camp might have leaked the story to test the waters. Investors have grown accustomed to Trump's communication style: bold statements often followed by more tempered actions. Whether true or not, this storyline has given European equities a much-needed boost.
As I mentioned earlier, the second act was tech. The market loves it, because stocks in the sector tend to rise rapidly, making investing in other, less risky assets about as exciting as watching paint dry. Yesterday, investors had begun to salivate at Microsoft' s announcements of XXL spending on AI infrastructure and the robust sales of Foxconn, one of the world's largest electronics subcontractors. Now, they're fantasizing about the announcements expected at CES in Las Vegas, the annual tech extravaganza that kicks off today in the USA. Financiers have put their faith in Jensen Huang, Nvidia's voluble boss, to keep the AI flame burning, a task he has, it has to be said, acquitted himself perfectly over the last few quarters. With luxury goods and automobiles, the market found a third pillar to bounce back on yesterday, particularly among chip suppliers. The four European companies that gained over 7% in the Stoxx Europe 600 were ASML, STMicroelectronics, Soitec and Infineon, four representatives of the semiconductor industry. Even before Jensen Huang opened his mouth last night, Nvidia had set a new record and was once again hot on Apple' s heels for the scepter of the world's most valuable company ($3,660 billion versus $3,703 billion for Apple). The SOX index, which measures the rise of the US chip sector, has already gained 6.6% since January1.
The rest of the news is dominated by Justin Trudeau's resignation after more than nine years at the helm of Canada. He could be replaced by Mark Carney, former governor of the Bank of Canada and the Bank of England. Meanwhile, the United States has stepped up the pressure on Chinese companies. In recent years, the U.S. Department of Defense has compiled a blacklist of unfriendly companies with links to the Communist Party or the Chinese military. This list is made up of companies that are little known in the West and others that are better known. Washington has just added two high-profile names to the list: entertainment giant Tencent and the world's number-one car battery manufacturer CATL. Both stocks are down on the stock market this morning, contributing to an already gloomy mood on Chinese markets.
In Asia Pacific this morning, the MSCI China index fell 1.5%. The rest of the region's stock markets remained unaffected by the turmoil, following in the wake of the US Nasdaq. Tokyo gained 2% at the end of the day, while Seoul, Bombay, Sydney and Taipei gained between 0.2% and 0.7%. In Europe, most indices are bullish, with the Stoxx Europe 600 up 0.4%.
Economic highlights:
European December inflation, the US ISM services and JOLTS surveys are on the calendar today. https://www.marketscreener.com/stock-exchange/calendar/economic/
- Dollar: EUR 0.9615 GBP 0.7974
- Ounce of gold: USD 2659
- Brent crude: USD 76.88 WTI: USD 73.65
- 10-year US bond: 4.64
- Bitcoin: USD 100,640
In corporate news:
- AbbVie cuts 2024 earnings forecast due to acquisition costs.
- Nvidia has been actively expanding its partnerships and product offerings, including collaborations with Aurora Innovation, Continental, Toyota, and Kion Group for autonomous vehicles and AI-powered systems, while also launching new gaming chips and AI training technologies, leading to a surge in its stock price.
- NXP Semiconductors is set to acquire TTTech Auto for $625 million to enhance its automotive safety software offerings, while also projecting up to 10% of its revenue to come from India by 2030, amid a broader context where tech stocks, including semiconductor ETFs, are experiencing gains.
- Phillips 66 buys EPIC NGL for $2.2 billion to strengthen its presence in the Permian.
- Stryker to buy Inari Medical for $4.9 billion (USD 80 per share).
- Meta Platforms has appointed new directors including UFC CEO Dana White to its board and is replacing its U.S. third-party fact-checking program with a 'Community Notes' system, while an insider has sold shares.
- Walt Disney to merge its Hulu+ Live TV service with FuboTV, forming a major new streaming entity 70% controlled by Disney.
- FGL Environmental is about to sell the controlling stake in its services unit to Apollo and BC Partners for $5.6 billion.
- KKR plans to sell Japanese supermarket chain Seiyu.
- Exxon Mobil sues California Attorney General and environmental groups.
- Disney and FuboTV are merging their streaming services to form North America's second-largest internet pay-TV provider, while US Steel and Nippon Steel contest a presidential order blocking their merger, amidst mixed US stock market reactions and notable activity in communications stocks due to these developments.
- Deere bets on autonomous tractors with new machines.
- Ansys sells its PowerArtist business to Keysight.
- Ulta Beauty announces the retirement of CEO Dave Kimbell, replaced by Kecia Steelman, and raises its forecasts.
- Microsoft plans to invest $3 billion over the next two years to enhance its cloud computing and artificial intelligence infrastructure in India, aiming to boost its Azure services and long-term success in the region.
- BlackBerry gained 8% yesterday thanks to the collaboration of its QNX unit with Microsoft.
Analyst recommendations:
- Acadia Healthcare Company, Inc.: KeyBanc Capital Markets upgrades to overweight from sector weight with a target price of USD 70.
- Bank Of America Corporation: HSBC upgrades to buy from hold with a target price raised from USD 45 to USD 50.
- Carvana Co.: RBC Capital upgrades to outperform from sector perform with a target price raised from USD 270 to USD 280.
- Cousins Properties Incorporated: Mizuho Securities upgrades to neutral from underperform with a price target raised from USD 22 to USD 30.
- Dow Inc.: Piper Sandler & Co downgrades to neutral from overweight with a price target reduced from USD 60 to USD 53.
- Dutch Bros Inc.: Barclays upgrades to overweight from equalweight with a price target raised from USD 38 to USD 70.
- Freeport-Mcmoran Inc.: Bernstein downgrades to market perform from outperform with a target price reduced from USD 51 to USD 46.
- Kilroy Realty Corporation: Mizuho Securities downgrades to neutral from outperform with a target price reduced from USD 45 to USD 43.
- Lpl Financial Holdings Inc.: JP Morgan upgrades to overweight from dropped coverage with a target price raised from USD 259 to USD 397.
- Lululemon Athletica Inc.: Bernstein upgrades to outperform from market perform and raises the target price from USD 360 to USD 460.
- Lyondellbasell Industries N.v.: Piper Sandler & Co downgrades to neutral from overweight with a price target reduced from USD 112 to USD 95.
- Principal Financial Group, Inc.: JP Morgan upgrades to overweight from neutral with a target price reduced from USD 95 to USD 92.
- Robinhood Markets, Inc.: JP Morgan upgrades to neutral from underweight with a target price raised from USD 20 to USD 43.
- Ross Stores, Inc.: Bernstein downgrades to market perform from outperform with a target price reduced from USD 178 to USD 165.
- Royal Gold, Inc.: Jefferies upgrades to buy from hold with a target price raised from USD 154 to USD 178.
- Sunrun Inc.: BNP Paribas Exane upgrades to outperform from neutral with a target price raised from USD 14 to USD 16.
- Truist Financial Corporation: HSBC upgrades to buy from hold with a price target raised from USD 47 to USD 50.
- Unum Group: JP Morgan downgrades to neutral from overweight with a target price raised from USD 74 to USD 79.
- Vornado Realty Trust: Mizuho Securities upgrades to outperform from neutral with a price target raised from USD 38 to USD 48.
- Walt Disney Company (The): Redburn Atlantic upgrades to buy from neutral with a price target raised from USD 100 to USD 147.
- Axon Enterprise, Inc.: Raymond James maintains its outperform rating and raises the target price from USD 515 to USD 645.
- Celanese Corporation: Piper Sandler & Co maintains its underweight recommendation and reduces the target price from 98 to USD 77.
- Interactive Brokers Group, Inc.: Piper Sandler & Co maintains its overweight recommendation and raises the target price from USD 163 to USD 200.
- Snap Inc.: Cantor Fitzgerald maintains a neutral recommendation with a price target raised from 9 to USD 12.
- Tapestry, Inc.: Bernstein maintains its outperform recommendation and raises the target price from 60 to USD 78.
- The Trade Desk, Inc.: Arete Research maintains its sell recommendation with a price target raised from 40 to USD 62.
- Zillow Group, Inc.: Cantor Fitzgerald maintains a neutral recommendation with a price target raised from 47 to USD 62.
- Aj Bell Plc: Panmure Liberum upgrades to buy from hold with a target price of GBX 540.
- Antofagasta Plc: Bernstein upgrades to outperform from market perform with a target price of GBX 1950.
- BP Plc: Morgan Stanley downgrades to equalwt from equalwt with a price target reduced from GBX 445 to GBX 407.