Global Market Volatility: Fed Rate Cut Expectations, Geopolitical Risks, and Tech Giant Performance

Global Market Volatility: Fed Rate Cut Expectations, Geopolitical Risks, and Tech Giant PerformanceThe New York Fed's manufacturing index plummeted in December, marking its largest decline since May 2023. Simultaneously, the US services PMI expanded at its fastest pace in over three years, highlighting the complex state of the US economy

Global Market Volatility: Fed Rate Cut Expectations, Geopolitical Risks, and Tech Giant Performance

The New York Fed's manufacturing index plummeted in December, marking its largest decline since May 2023. Simultaneously, the US services PMI expanded at its fastest pace in over three years, highlighting the complex state of the US economy. A significant rise in price indices further fueled inflation concerns. Investors are closely watching this week's Federal Reserve meeting, with the market anticipating another 25-basis-point rate cut. However, Nick Timiraos, the "Fed whisperer," suggests the Fed may slow or even halt further rate cuts. Goldman Sachs predicts the Fed will "skip" a rate cut in January and signal a slowdown in easing this week.

Internationally, Moody's Analytics anticipates a 25-basis-point interest rate hike by the Bank of Japan this week. Canadian politics experienced upheaval with the sudden resignation of Finance Minister Chrystia Freeland. SoftBank Group Chairman Masayoshi Son visited the US, announcing a $100 billion investment in the country. The Eurozone saw continued contraction in its December PMI, with Germany's manufacturing sector remaining in recession and inflationary pressures intensifying. French manufacturing output fell to a 55-month low, while UK employment saw its steepest decline in four years. Germany faced political instability as Chancellor Olaf Scholz failed a parliamentary confidence vote and will recommend the dissolution of parliament to the President. European Central Bank President Christine Lagarde stated that the ECB will further cut interest rates and believes the fight against inflation is nearing victory.

On the US stock market, ahead of the Fed meeting, major indices showed divergence. The Nasdaq Composite hit a new high, with tech, chip, and AI stocks generally rising. Apple, Google, Tesla, and Broadcom all hit record highs, with Broadcom leading the Nasdaq surge, up over 11% and surpassing a $1 trillion market cap. The technology and discretionary consumer goods sectors of the S&P 500 also hit closing highs. However, the Dow Jones Industrial Average, closely tied to the economic cycle, fell for an eighth consecutive day. Nvidia's stock price entered correction territory, falling over 10% from its all-time high.

Specifically, the S&P 500 closed up 22.99 points (0.38%) at 6074.08; the Dow Jones Industrial Average fell 110.58 points (0.25%) to 437717.48; the Nasdaq Composite rose 247.17 points (1.24%) to 20173.89; the Nasdaq 100 gained 1.45%; the Nasdaq Technology Sector Weighted Index (NDXTMC) increased by 1.99%; the Russell 2000 small-cap index, more sensitive to economic cycles, rose 0.64%; and the VIX volatility index, a measure of market fear, increased by 6.37% to 14.69.

Sector ETFs mostly rose. The Semiconductor ETF was up 1.51%; Discretionary Consumer, Internet, Global Tech, and Tech ETFs all gained over 1%; Banking and Regional Bank ETFs rose approximately 0.5%; Utilities fell 0.8%; Healthcare declined 1.19%; and Energy dropped 2.2%.

The "Magnificent Seven" tech giants mostly rose. Tesla surged 6.14% to a new all-time high, fueled by reports that Trump's transition team planned to reverse Biden's electric vehicle policies. Wedbush analyst Dan Ives stated he would raise his 2025 price target for Tesla by 29% to $515 (from $400) if all goes as expected. Tesla's Texas lithium refinery began production, making it the first North American automaker to process its own lithium, projected to produce about 50 GWh of battery-grade lithium annually. Google Class A shares rose 3.6% after a major generative AI update, including video model VEO2 and the latest Imagen 3; Amazon gained 2.4%; Apple rose 1.17%; Microsoft increased 0.97%; Meta rose 0.71%; and Nvidia fell 1.68%, entering correction territory during the session, falling more than 10% from its all-time high.

Most chip stocks rose. The Philadelphia Semiconductor Index closed up 2.06% at 5256.06; SOXX, a semiconductor ETF, gained 1.85%; a 2x leveraged Nvidia ETF fell 3.33%; Broadcom soared 11.21%, hitting a new closing high of $250 and a market cap of $1.17 trillion after Goldman Sachs raised its price target; Micron Technology, up over 8.4% before closing at 5.62%, will release its earnings report after the market closes on December 18th; Marvell Technology rose 3.32%; ASM International ADR gained approximately 3.1%; Intel climbed 2.41%; TSMC rose 0.61%; Foxconn increased 1.1%; Qorvo rose over 1.0%; Arm Holdings fell 4.55%; Wolfspeed fell 3.03%; Qualcomm dipped 0.4%; Analog Devices fell over 1%; Texas Instruments dropped over 1.1%; Microchip Technology fell over 1.4%; Maxim Integrated Products (MKSI) fell 1.5%.

Most AI stocks rose. BigBear.ai gained 18.65%; SoundHound AI, in which Nvidia holds shares, surged over 16.4% to $19.69, hitting a new closing high for the second consecutive day and accumulating a gain of over 44%; ServeRobotics rose 14.53%; C3.ai gained over 8.8%; AppLovin increased over 6%; CrowdStrike rose about 5.5%; Palantir fell 0.42%; Oracle decreased 1.25%; and AMD fell 8.26%.

Most Chinese stocks fell, with the Nasdaq Golden Dragon China Index closing down 2.19%. In ETFs, the 3x long FTSE China ETF (YINN) fell 4.61%; the China Internet ETF (KWEB) dropped 2.62%; the China Technology ETF (CQQQ) fell 2.37%; and the 3x short FTSE China ETF (YANG) rose 4.77%. The FTSE A50 futures index closed down 0.30% at 13273.000 during the overnight session. Among popular Chinese stocks, JD.com fell 1.56%; Zhihu dropped 1.6%; Li Auto decreased 1.8%; Nio fell 2%; New Oriental fell 2%; Alibaba dropped 2%, with plans to sell Yintai Department Store to Youngor Group (expected announcement tomorrow); NetEase fell 2.21%; Zeekr fell 2.42%; Pinduoduo fell 2.6%; Baidu fell 2.73%; Vipshop fell 2.94%; Bilibili fell 3.03%; Tiger Brokers fell 4.18%; Daqo New Energy fell 6.42%; and Miniso rose 3.03%.

Bitcoin futures hit an all-time high, and cryptocurrency-related stocks generally rose. Riot Platforms gained 8.01%; "meme stock" Uxin increased 5%; Bitdeer Technologies rose 10.61%; Canaan Inc. gained 8.04%; Coinbase, a major cryptocurrency exchange, rose 1.52%; MicroStrategy (MSTR), a major Bitcoin holder, fell 0.04%, having purchased $1.5 billion worth of Bitcoin at an average price of approximately $100,386 between December 9-15, marking the company's sixth consecutive Monday announcement of Bitcoin purchases; and BTCDigital fell 5.8%.

Weak Eurozone economic data caused declines in most European stock sectors, with auto stocks falling 3% to lead the decline. Moody's downgraded France's credit rating from Aa2 to Aa3, resulting in a 0.71% drop in French stocks. On its first day of trading, broadcasting and film production company Canal+ fell 22%; and publisher Louis Hachette rose 23%. The Danish stock index rebounded over 1.9%, with Novo Nordisk closing up over 3%. The pan-European STOXX 600 fell 0.12% to 519.20; the Eurozone STOXX 50 fell 0.42%; and the FTSE Eurofirst 300 fell 0.07%.