Market Performance Overview
On Thursday, the S&P 500 Index SPY declined by 0.28%, while the Dow Jones Industrial Average DIA saw a drop of 0.54%. Similarly, the Nasdaq 100 Index QQQ ended the day down by 0.41%. Futures for March E-mini S&P ESH26 fell by 0.25%, and March E-mini Nasdaq NQH26 posted a loss of 0.40%.
Sector Insights and Market Sentiment
Thursday’s trading reflected a prevailing caution, spearheaded by declines within the semiconductor and AI infrastructure sectors. The market remains wary as analysts question whether substantial investments in artificial intelligence are genuinely viable.
Furthermore, a shadow loomed from the FOMC meeting minutes on January 27-28, which indicated that certain policymakers might advocate for interest rate hikes if inflation persists above desired levels.
Geopolitical anxieties contributed to the day’s market downturn. Notably, WTI crude oil CLH26 surged by over 1%, reaching a six-and-a-half-month peak, following warnings from the head of the United Nations nuclear agency regarding diminished diplomatic avenues with Iran. Former President Trump weighed in as well, suggesting dire consequences if negotiations falter.
Economic Indicators
The day’s economic reports presented a mixed bag for market participants. On a positive note, weekly jobless claims dipped to their lowest in five weeks, and the Philadelphia business outlook survey for February surprisingly climbed to a five-month pinnacle.
However, the December trade deficit unexpectedly widened to its largest in five months, and pending home sales for January fell short of expectations, registering a decline.
Fed Governor Stephen Miran’s hawkish commentary further dampened market prospects, reiterating a “less accommodative” stance on interest rates in light of a resilient job market and persistent inflation in goods.
Key Economic Metrics
- Initial unemployment claims fell by 23,000, settling at a five-week low of 206,000.
- The February Philadelphia business outlook index rose by 3.7 points to 16.3, defying expectations of a drop.
- The December trade deficit swelled to $70.3 billion, surpassing estimates of $55.5 billion.
- Pending home sales for January unexpectedly decreased by 0.8%, contrasting with anticipated growth.
Looking Ahead
The upcoming days will showcase a focus on corporate earnings and economic indicators. Expectations for Q4 GDP growth hover around 3.0% (quarter-on-quarter annualized), with core price index predictions at 2.6%.
In addition, personal spending and income figures are projected to rise modestly, alongside anticipated increases in the core PCE price index, a favored measure of inflation by the Federal Reserve.
The February S&P manufacturing PMI is expected to slightly dip, while data on new home sales will also be released.
As Q4 earnings season concludes, over three-quarters of S&P 500 firms have reported, with 74% exceeding projections.
Bloomberg Intelligence anticipates S&P earnings growth of 8.4% for Q4, marking a decade of consecutive year-over-year growth, with a projected 4.6% increase when excluding the largest technology firms.
The market is currently pricing in a minimal 6% likelihood of a 25 basis point rate cut at the forthcoming policy meeting.
International Market Activity
Overseas markets closed with varied results on Thursday. The Euro Stoxx 50 depreciated by 0.72%, while Japan’s Nikkei Stock 225 gained 0.57%. Meanwhile, China’s Shanghai Composite remained closed in observance of the Lunar New Year holiday.
Bond Market Update
March 10-year T-notes (ZNH6) ended slightly higher, closing with a 0.5 tick gain. The 10-year T-note yield fell by 1.2 basis points to 4.071%.
Initially impacted by positive U.S. economic reports, T-notes rebounded as escalating geopolitical risks boosted demand for safe-haven assets.
European government bond yields reflected a mixed sentiment, with the 10-year German Bund yield rising by 0.4 basis points to 2.743%, while the 10-year UK gilt yield dipped by 0.6 basis points to 4.368%.
Corporate Movements
A tumultuous day for technology stocks, particularly those in the semiconductor and AI sectors, weighed on the overall market. Western Digital WDC plummeted over 4%, while Seagate Technology Holdings STX fell by more than 3%.
Firms such as Microchip Technology MCHP, NXP Semiconductors NV NXPI, Intel INTC, and Texas Instruments TXN all registered losses exceeding 2%. Additionally, Qualcomm QCOM, Lam Research LRCX, Micron Technology MU, and ASML Holding NV ASML saw declines of over 1%.
Avis Budget Group CAR plummeted over 22% after revealing a subdued adjusted EBITDA forecast for the year, trailing consensus estimates. EPAM Systems dropped by over 17%, predicting revenue growth that falls short of expectations.
Meanwhile, Pool Corp POOL and Wayfair W experienced declines of over 14% and 12%, respectively, following disappointing quarterly results.
In contrast, notable gainers included Omnicom Group OMC, which surged over 15% after exceeding revenue expectations. Deere & Co DE rallied more than 11% after raising its net income projections.
Etsy ETSY climbed over 9% following its exit from the Depop business, while Occidental Petroleum OXY observed a similar increase after reporting stronger-than-anticipated net sales.
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