The financial markets have shaken off their holiday hangover and are back to business. Last week, as we teetered between 2024 and 2025, many investors were still in holiday mode. Yet, Friday's trading session was anything but sleepy, with significant swings in both directions. On Friday morning, I jested about the supposed outperformance of European stocks over their American counterparts at the dawn of 2025. Europe had eked out a small gain in the first session, while Wall Street took a dip. A fleeting triumph, indeed, as by Friday, the US market had bounced back robustly, leaving Europe trailing. Paris, in particular, took a hit, with luxury stocks suffering after a Reuters report highlighted empty stores and sluggish sales in Hainan, China's Duty Free island. This revelation further underscored the sector's heavy reliance on China, a dependency deeper than investors had anticipated. The silver lining? We know which stocks to watch when Beijing decides to open the economic floodgates again. The downside? The timing remains a mystery. As a result, the Paris market dropped 1.5% on Friday, a decline more pronounced than the European average, echoing the market dynamics of 2024. There were, however, a few bright spots: Zurich, buoyed by UBS following a glowing report from Bank of America, and Oslo, lifted by rising oil prices that favored the Norwegian oil-centric market.
On Friday, Wall Street had a moment of brilliance. So, what does an American investor do when fresh ideas are in short supply at the start of the year? They turn to technology stocks, of course. Nvidia was the star of the show, climbing 4.5% as investors bet on its role in the artificial intelligence boom. Microsoft and Amazon also found favor with buyers. And then there's Tesla, which surged 8.2%—perhaps because its CEO seems to have a hand in everything these days. Meanwhile, Apple was the odd one out among the top ten U.S. companies, slipping slightly due to whispers of declining iPhone sales in China. Despite Apple's dip, the rest of the tech titans helped lift the Nasdaq by 1.7% and the S&P 500 by 1.3%, snapping a five-day losing streak.
Certainly, it's premature to make sweeping declarations, but one thing is clear: the TINA syndrome—There is No Alternative—still holds sway over technology stocks, especially the "magnificent seven." The New Year hasn't changed that tune. If it’s working, why change it? Meanwhile, U.S. yields saw a slight contraction following cautious remarks from three Federal Reserve officials. They emphasized that inflation is still running high and hinted that interest rates might stay elevated longer than anticipated. This echoes the sentiment expressed by Federal Reserve Chair Jerome Powell back in December.
In the land of the Great Wall and even greater economic surprises, China's Caixin services PMI has outperformed expectations in December, signaling robust growth in the service sector. This is a welcome development, especially as the manufacturing industry seems to be stuck in a rut. Meanwhile, the People's Bank of China is busy chanting its mantra of support, promising measures to boost technological innovation and consumer spending. On another note, the Wall Street Journal reports that the recent cyber breach targeting US telecommunications firms, allegedly orchestrated by China, has cast a wider net than initially thought. It seems the digital dragon has been busier than anticipated.
In a surprising twist, Canada's Prime Minister Justin Trudeau is reportedly set to hang up his political skates today, as per the Globe and Mail. This development adds a fresh layer of intrigue to the global political landscape. Meanwhile, on the economic front, this week promises a flurry of data releases that could keep market watchers on their toes. Kicking off the week, we'll get a first glimpse of December's inflation figures from Germany on Monday, followed by the eurozone's numbers on Tuesday. Midweek, the spotlight shifts to the United States with the release of the minutes from the latest Federal Reserve meeting on Wednesday. And just when you thought the week couldn't get any busier, Friday brings us the eagerly anticipated U.S. employment figures for December. Buckle up, it's going to be an eventful week in the world of finance.
As the curtain rose on the new year, Japan's Nikkei 225 took a 1.5% dip, despite a helping hand from its tech sector. Over in China, the services PMI failed to lift spirits, nudging the MSCI China down by another 0.3%. Meanwhile, South Korea and Taiwan enjoyed a more jubilant start, each climbing over 2%, thanks to a bounce in US tech stocks, robust numbers from Foxconn, and promising prospects for AI-driven chip investments. Australia managed a modest gain of 0.1%, while India wasn't so lucky, slipping by 1.6%. Europe indices are bullish, with the Stoxx Europe 600 up 0.6%. Futures on Wall Street are also in the green, with the Dow up 0.3%, the S&P 500 up 0.7% and the Nasdaq up 0.9%.
Today's economic highlights:
Attention will focus on the latest PMI services indicators, the first estimate of German inflation for December and US durable goods orders. The full calendar is here.
- Dollar: EUR 0.9602 GBP 0.7976
- Ounce of gold: USD 2645
- Brent crude: USD 76.83 WTI: USD 74.00
- 10-year US bond: 4.59
- Bitcoin: USD 98,888
In corporate news:
- Microsoft will have invested $80 billion in AI infrastructure by the end of 2025.
- Paychex is negotiating to buy Paycor, according to Bloomberg.
- General Motors, Ford and Toyota saw sales growth in the US in 2024.
- Shares in Federal Home Loan Mortgage Corp (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) soared 30% after the federal agencies unveiled a framework for their “orderly” exit from government conservatorship.
- Getty Images is considering merging with Shutterstock, according to Bloomberg.
- Walt Disney is reportedly close to merging Hulu and its live TV service with FuboTV, aiming to integrate their online live TV offerings into a sports-centric streaming platform.
- In December, Spain's service sector saw its fastest expansion since April due to a surge in new business and recovery post-flooding, while the HCOB Eurozone Composite PMI Output Index increased, and S&P Global completed the acquisition of ProntoNLP.
- Alibaba International's AI-powered search engine Accio has reached 500,000 SME users, while Alibaba Cloud has partnered with 01.AI and RayNeo to enhance AI models and support AR glasses products with large language models.
- United States Steel and Nippon Steel have filed federal lawsuits challenging President Biden's order blocking their proposed business deal.
- Perpetua Resources has been approved by the U.S. Forest Service to develop the Stibnite gold-antimony project in Idaho, following an eight-year review, while maintaining its stock rating and price target as per National Bank of Canada.
- Uber Technologies has accelerated its stock buyback plan by signing an agreement to repurchase $1.5 billion of its shares from Bank of America.
- KKR has taken legal action against Bain Capital, urging Fuji Soft to file an injunction over allegations of breaching a non-disclosure agreement and misusing confidential information in a takeover bid.
Analyst recommendations:
- Amcor Plc: Citi upgrades to buy from neutral with a price target raised from USD 11 to USD 12.
- Appfolio, Inc.: Piper Sandler & Co downgrades to neutral from overweight with a target price of USD 265.
- At&T Inc.: RBC Capital upgrades to outperform from sector perform with a target price raised from USD 22 to USD 26.
- Avalonbay Communities, Inc.: Mizuho Securities upgrades to outperform from neutral with a price target raised from USD 239 to USD 242.
- Boeing: Barclays upgrades to overweight from equalweight with a price target raised from USD 190 to USD 210.
- Citigroup Inc.: Barclays upgrades to overweight from equalweight with a price target raised from USD 70 to USD 95.
- Costco Wholesale Corporation: President Capital Management Corp upgrades to buy from neutral with a target price raised from USD 755 to USD 1009.
- Dutch Bros Inc.: Baird upgrades to outperform from neutral with a target price raised from USD 60 to USD 70.
- Fidelity National Information Services, Inc.: Raymond James downgrades to outperform from strong buy with a price target reduced from USD 115 to USD 101.
- Fortinet, Inc.: Piper Sandler & Co upgrades to overweight from neutral with a price target raised from USD 100 to USD 120.
- General Dynamics Corporation: Vertical Research Partners downgrades to hold from buy with a target price reduced from USD 352 to USD 290.
- Kenvue Inc.: Piper Sandler & Co upgrades to overweight from neutral with a price target raised from USD 21 to USD 26.
- Mks Instruments, Inc.: Citi upgrades to buy from neutral with a target price of USD 130.
- Nike, Inc.: Baptista Research downgrades to outperform from buy with a price target reduced from USD 109 to USD 84.90.
- Nov Inc.: Seaport Global downgrades to neutral from buy.
- Pentair Plc: KeyBanc Capital Markets downgrades to sector weight from overweight.
- Procore Technologies, Inc.: Jefferies upgrades to buy from hold with a price target raised from USD 80 to USD 100.
- Prologis, Inc.: Baird upgrades to outperform from neutral with a target price reduced from USD 124 to USD 123.
- Republic Services, Inc.: RBC Capital upgrades to outperform from sector perform with a target price raised from USD 219 to USD 237.
- Synchrony Financial: Barclays upgrades to overweight from equalweight with a price target raised from USD 59 to USD 79.
- T-Mobile Us, Inc.: Wells Fargo downgrades to equalweight from overweight with a price target reduced from USD 240 to USD 220.
- Textron Inc.: Vertical Research Partners upgrades to buy from hold with a target price of USD 91.
- Zoominfo Technologies Inc.: Piper Sandler & Co downgrades to underweight from neutral with a target price reduced from USD 11 to USD 10.
- Antofagasta Plc: Canaccord Genuity upgrades to buy from hold with a target price of GBX 2065.
- Barratt Redrow P: Redburn Atlantic upgrades to buy from neutral with a target price raised from GBX 530 to GBX 540.
- Crest Nicholson Holdings Plc: Redburn Atlantic downgrades to neutral from buy with a target price reduced from GBX 215 to GBX 186.
- Currys Plc: BNP Paribas Exane upgrades to neutral from underperform with a price target raised from GBX 65 to GBX 95.