(Bloomberg) -- Stocks struggled to make headway after strong gains, while bond yields fell on dovish comments from Federal Reserve Governor Christopher Waller.
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Wall Street is also paying close attention to comments from Treasury secretary nominee Scott Bessent, who said the U.S. will face an economic crisis if the 2017 Republican tax cuts are not extended. Stocks edged lower after the S&P 500 gained nearly 2%. While most companies rose, declines in tech giants weighed on the market. Even solid earnings from Morgan Stanley and Bank of America failed to boost the benchmark index.
"Investors hit the pause button following yesterday's sharp gains," said Jose Torres of Interactive Brokers.
U.S. Treasuries rose after Waller told CNBC that officials could cut rates again in the first half of 2025 if inflation data continues to be favorable. He also didn't completely rule out a rate cut in March. Swaps imply more easing this year.
The dollar is hovering near a two-year high. Bessant stressed that maintaining the U.S. dollar's status as the world's reserve currency is crucial. Asked what impact President-elect Donald Trump's economic plans would have on inflation, Bessant said he believed the policies would bring inflation closer to the Fed's target.
The S&P 500 fell 0.2%. The Nasdaq 100 fell 0.7%. The Dow Jones Industrial Average fell 0.2%. An index of the "big seven" megacap stocks fell 1.9%. The Russell 2000 index rose 0.2%. The KBW Bank Index fell 0.2%.
The 10-year Treasury yield fell 4 basis points to 4.61%. The Bloomberg Dollar Spot Index rose 0.1%.
Despite the lack of momentum in stocks on Thursday, some traders pointed to the latest sentiment survey from the American Association of Individual Investors as a buy signal.
Bullish sentiment, expectations that the stock price will rise over the next six months, fell to 25.4%. AAII said optimism was unusually low, falling below the historical average of 37.5% for the third time in seven weeks.
"We believe extreme sentiment indicators are fairly reliable contrarian indicators," said Larry Tentarelli of Blue Chip Daily Trend Report. "Investors tend to be most bullish at market highs and most bearish near market lows."
U.S. stocks surged for a third straight year (their last strong performance was in the 1990s), topping Bank of America Corp.'s list of potential market surprises for 2025.
The company says it's a tall order, but not unthinkable. The company floated the idea in its latest release honoring late Wall Street strategist Byron Wien.
Bank of America strategists led by Jared said that after the S&P 500 surged 24% in 2023 and 23% in 2024, excessive valuations will make it difficult to achieve such performance again this year, and extreme fiscal and monetary policies will The same goes for risks such as concentration and uncertainty. Woodard wrote in a report this week.
Thursday's economic data was a mixed bag as traders pore over corporate earnings reports. U.S. homebuilders were less optimistic about the sales outlook, while retail sales data suggested consumers were doing well during the holidays.
“The fourth-quarter earnings season will provide an opportunity for investors to shift their attention from macro data to micro data in the coming weeks,” said David Lefkowitz of UBS Global Wealth Management. “ We remain attractive on U.S. equities."
Even a strong corporate earnings season is unlikely to fuel a sustained rally for stocks. That’s the view of BlackRock Inc.’s Helen Jewell, who warned that the outlook for stocks remains fragile in the coming weeks amid worries about economic growth and inflation.
"It's going to be a tough earnings season, although the earnings numbers themselves won't necessarily be that big," Jewell said in an interview. “What I’m more nervous about is how many winners have been rewarded and how many losers have been hit, especially in the U.S. where valuation multiples are very high.”
Meanwhile, investors have increased their exposure to the largest technology stocks and appear to have little interest in hedging with less than two weeks before the group's earnings season begins.
Discretionary investment in large-cap, growth and technology stocks has reached its highest level since July, according to data compiled by Deutsche Bank. Hedge funds are set to return to the group in 2024 after months of sustained sell-off.
Company Highlights:
Morgan Stanley's fourth-quarter profit more than doubled as trading revenue far exceeded expectations due to U.S. election-related volatility.
Bank of America reported fourth-quarter profit that beat analysts' expectations as investment banking fees hit their highest level in three years and net interest income also beat expectations.
PNC Financial Services Group Inc. and U.S. Bancorp gave modest forecasts for first-quarter net interest income amid uncertainty about how lower interest rates will revive loan demand.
Microsoft Corp. is raising prices for its suite of consumer-facing Office applications, betting that users will be willing to pay more to use new artificial intelligence tools.
UnitedHealth Group's fourth-quarter health care costs continued to rise and revenue fell short of expectations.
Target Corp. raised sales guidance after a better-than-expected holiday quarter, but the increase wasn't enough to ease investor concerns about profitability.
American Express Co. will pay about $230 million to resolve a long-running investigation into some of its previous sales practices that regulators said misled small business owners.
Rio Tinto Group Plc and Glencore Plc have been discussing merging their businesses, according to people familiar with the matter, in what could be the biggest deal in mining history.
Reliance Industries Ltd., controlled by billionaire Mukesh Ambani, reported slightly better-than-expected quarterly profit, with gains in its telecoms and retail units offsetting volatility in its petrochemicals business.
TSMC's projected quarterly sales and capital expenditures topped analysts' expectations, raising hopes that spending on artificial intelligence hardware will remain resilient in 2025.
Main events this week:
China Friday GDP, real estate prices, retail sales, industrial production
Eurozone consumer price index on Friday
U.S. housing starts, industrial production on Friday
Some major trends in the market:
stock
The S&P 500 fell 0.2% as of 4 p.m. New York time
The Nasdaq 100 fell 0.7%
The Dow Jones Industrial Average fell 0.2%
MSCI World Index little changed
Bloomberg Magnificent 7 Total Return Index fell 1.9%
Russell 2000 index rose 0.2%
The KBW Bank Index fell 0.2%
currency
The Bloomberg Dollar Spot Index rose 0.1%
EUR/USD was little changed at $1.0298
Sterling fell 0.1% to $1.2229
The yen rose 0.8% to 155.22 against the dollar
cryptocurrency
Bitcoin rises 0.6% to $100,262.36
Ethereum drops 3% to $3,329.5
bond
The 10-year Treasury yield fell 4 basis points to 4.61%
German 10-year bond yields fell 1 basis point to 2.55%
UK 10-year government bond yields fell 5 basis points to 4.68%
commodity
West Texas Intermediate crude fell 1.7% to $78.66 a barrel
Spot gold rose 0.7% to $2,714.48 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Sujata Rao, Margaryta Kirakosian, John Viljoen, and Chiranjivi Chakraborty.
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