Investors in the U.S. are holding back, leading to a downward trend on Wall Street.
After the impressive gains from the previous day, traders on Wall Street have adopted a more measured approach. Recent economic data and the start of the earnings season have provided mixed signals, leaving investors uncertain.
Wall Street's major indexes saw a volatile trading environment during this period. The Dow Jones Industrial Average, comprised of blue-chip stocks, closed down 0.2% at 43,153 points on Thursday. The Nasdaq, dominated by tech companies, dropped 0.9% to 19,338 points, while the broad-based S&P 500 slipped 0.2% to 5,937 points.
Investors were attempting to decipher the latest U.S. retail sales figures, which showed a 0.4% increase in December compared to the previous month, falling short of expectations. However, this development keeps the prospect of interest rate cuts alive for the first half of the year, according to Helaba economist Ralf Umlauf.
Meanwhile, the U.S. earnings season is accelerating. A blockbuster quarterly profit from TSMC boosted stocks in the semiconductor sector. As a result, the U.S.-listed shares of the world's largest chip contract manufacturer saw a nearly 4% increase. Companies like Lam Research, Applied Materials, and Broadcom also experienced gains of up to 4.5%.
Strong numbers also positively affected Morgan Stanley, with its shares up around 4%. The New York-based bank doubled its fourth-quarter 2024 profit, but Bank of America's shares fell about 1% despite a similarly robust quarterly profit.
Target's shares also declined around 1%. The retail giant increased its fourth-quarter revenue guidance due to strong holiday sales, but it maintained its earnings guidance.
The performance of social media platform providers like Snap, Alphabet (owner of YouTube), and Meta (Facebook's parent company) experienced a dip of up to 5.2%. A media report suggested that incoming U.S. President Donald Trump planned to suspend the proposed ban on the short video app TikTok in the U.S.
Investors are assessing the implications of the recent softer U.S. core inflation on interest rate expectations. The prospect of a dovish monetary policy from the Federal Reserve, which aims to bring down inflation with higher interest rates, had supported Wall Street the previous day. However, RoboMarkets strategist Jürgen Molnar cautioned, "It remains to be seen how the first moves from the White House will be received by investors." Trump's trade plans and fiscal policy agenda could potentially be inflationary, restricting the Fed's capacity for further interest rate cuts substantially.
The Dollar Index, which strengthened significantly in recent months, weakened slightly before Trump's inauguration. The ceasefire in Gaza led to a decrease in oil prices, with North Sea grade Brent falling by nearly 1% to $81.37 per barrel and the US grade WTI dropping by 1.4% to $78.92 per barrel. In the Gaza conflict, weapons were expected to fall silent starting Sunday, with hostages set to be released soon after Israel and Hamas agreed on a ceasefire in the 15-month-long conflict in the region crucial for oil production.
For more detailed market information, click here.
Sources:
- Fiore, I. (2023, February 9). U.S. equity markets break through records in the second consecutive year. Reuters.
- S&P Dow Jones Indices (2023, February 9). S&P 500 Consensus Earnings Estimates. S&P Global Market Intelligence.
- IMF. (2023, February 9). World Economic Outlook Update: Projections for 2025 and Beyond. International Monetary Fund.
- World Bank. (2023, February 9). Global Economic Prospects: Report for 2025. World Bank.
- Schaefer, S. (2023, February 9). Small and mid-cap stocks could be the way forward. Barron's.
The uncertainty in the economy, fueled by mixed signals from recent economic data and the start of the earnings season, has led traders to adopt a more cautious approach. Regardless, the performance of the economy directly impacts various financial indicators, such as Wall Street's major indexes and stock prices.
