S&P 500 Swoons in Last 15 Minutes of US Trading: Markets Wrap

Positioning in mega-cap growth and tech remains very elevated heading into Nvidia’s earnings release due this week, in the 97th percentile and well above levels implied by earnings growth, according to Deutsche Bank AG strategists including Parag Thatte.

Fourth-quarter earnings are on pace to significantly exceed earnings estimates across capitalizations — nearly doubling the pre-season forecasts — but it hasn’t been enough to satisfy investors as stocks are responding with unusually sour returns, according to Gina Martin Adams and Wendy Soong at Bloomberg Intelligence.

“Disappointments in guidance, revisions and operating margin all share the blame,” the strategists noted. “Nvidia could still move the needle as the large-cap season wraps up.”

US equities won’t remain unpopular for long given the robust outlook for economic growth and corporate earnings, according to some of Wall Street’s top strategists.

Morgan Stanley strategist Michael Wilson — a bearish voice on US stocks until mid-2024 — said he expects capital to return to US stocks, calling the S&P 500 “the highest quality index” with “the best earnings growth prospects.”

“It’s premature to conclude the rotation away from the US is sustainable,” Wilson wrote in a note.

JPMorgan Chase & Co. strategist Mislav Matejka said a more subdued outlook for big tech was indeed a “meaningful impediment” for a renewed US outperformance more broadly. However, US earnings growth would need to undershoot the rest of the world to support an outright bearish view, he added.

“Recent economic and survey data do raise some warning flags, but S&P 500 companies delivered strong growth along with continued record profitability last quarter,” said Scott Helfstein at Global X. “Fundamentals will ultimately win out, but waning sentiment could well lead broad equity indexes sideways for a little while.”

Following double-digit returns for US equities over the past two years, and with valuations now incredibly expensive, investors are increasingly concerned about whether markets have peaked, according to Christian Floro at Principal Asset Management.

“Bull markets don’t just die of old age, however, and history suggests that the Federal Reserve tends to play an outsized role in determining the prevailing market regime based on its monetary policy stance,” he noted.

Most market selloffs larger than 10% since 1965 were triggered by either the Fed pivoting aggressively to a hawkish stance or the Fed staying restrictive for too long, he said. Floro noted that the current macroeconomic landscape differs meaningfully from past market peaks, particularly as data show little sign of a hard landing.

“A narrow but viable path remains for markets to grind higher, especially if earnings growth continues to deliver as expected,” he noted. “However, uncertainty around future policy decisions poses a significant risk. Prudent investors should remain vigilant, balancing optimism with a strategic approach to risk in today’s evolving market environment.”

Corporate Highlights:

• Zoom Communications Inc. projected worse-than-expected revenue growth for the year, dimming optimism that an expanded suite of products will bring a sales surge.

• Apple Inc., as it seeks relief from US President Donald Trump’s tariffs on goods imported from China, said that it will hire 20,000 new workers and produce AI servers in the US.

• Starbucks Corp. is eliminating 1,100 corporate jobs in a move aimed at increasing efficiency and quickly enacting changes to revitalize the company.

• Domino’s Pizza Inc.’s US sales rose less than expected in the fourth quarter, highlighting the mounting challenge to appeal to cash-strapped Americans.

• Boeing Co. has hired an adviser to market a defense subsidiary that manufactures small, long-range military drones as the planemaker looks to unload businesses that aren’t central to its core commercial and defense operations, according to people familiar with the talks.

• Apollo Global Management Inc. agreed to buy Bridge Investment Group Holdings Inc. for about $1.5 billion in an all-stock deal as the asset manager expands in real estate.

• Strategy, the self-styled Bitcoin treasury company that until recently was known as MicroStrategy, said it acquired $1.99 billion more of the cryptocurrency with the proceeds from last week’s convertible bond sale.

Key events this week:

• US consumer confidence, Tuesday

• Fed’s Lorie Logan, Tom Barkin, Michael Barr speak, Tuesday

• Apple shareholder meeting, Tuesday

• US new home sales, Wednesday

• Nvidia earnings, Wednesday

• Fed’s Raphael Bostic speaks, Wednesday

• Eurozone consumer confidence, Thursday

• US GDP, durable goods, initial jobless claims, Thursday

• Fed’s Jeff Schmid, Beth Hammack, Patrick Harker, Michael Barr, Michelle Bowman speak, Thursday

• Japan Tokyo CPI, industrial production, retail sales, Friday

• US PCE inflation, income and spending, Friday

• Fed’s Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5% as of 4 p.m. New York time

• The Nasdaq 100 fell 1.2%

• The Dow Jones Industrial Average was little changed

• The MSCI World Index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0462

• The British pound fell 0.1% to $1.2619

• The Japanese yen fell 0.3% to 149.76 per dollar

Cryptocurrencies

• Bitcoin fell 1.9% to $93,977.75

• Ether fell 5.9% to $2,642.2

Bonds

• The yield on 10-year Treasuries declined three basis points to 4.40%

• Germany’s 10-year yield was little changed at 2.48%

• Britain’s 10-year yield was little changed at 4.56%

Commodities

• West Texas Intermediate crude rose 0.6% to $70.83 a barrel

• Spot gold rose 0.5% to $2,950.91 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Cecile Gutscher, Sujata Rao, Lynn Thomasson, Robert Brand and Catherine Bosley.

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