The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.32%. March E-mini S&P futures (ESH26) fell -0.01%, and March E-mini Nasdaq futures (NQH26) rose +0.32%.
Stock indexes settled mixed on Wednesday, with the S&P 500 falling from a new all-time high and the Nasdaq 100 posting a 3-month high. Strength in chipmakers and AI infrastructure stocks led the broader market higher on Wednesday after a sharp increase in orders at ASML Holding NV added fresh optimism to the sustainability of artificial intelligence spending. ASML Holding NV, the only producer of lithography machines that are needed to make advanced semiconductors, reported today that Q4 bookings were a record 13.2 billion euros, well above the consensus of 6.85 billion euros. Also, better-than-expected earnings results from Seagate Technology Holdings NV and Texas Instruments added to the bullish market sentiment.
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Stocks fell from their best levels and turned mixed on Wednesday after the FOMC, as expected, kept interest rates unchanged and Fed Chair Powell refrained from signaling any imminent rate cuts amid a solid economy.
The dollar index (DXY00) finished higher on Wednesday, recovering some of Tuesday’s plunge to a nearly 4-year low. The dollar sank on Tuesday after President Trump said that he’s comfortable with the recent weakness in the dollar. Meanwhile, Mr. Trump’s comments pushed gold prices (GCG26) up more than +3% on Wednesday to a new all-time high.
WTI crude oil (CLH26) climbed to a 4-month high today after President Trump said in a social media post that he wants Iran to come to the table and negotiate a “fair and equitable deal with No Nuclear Weapons.” He warned Iran that time is running out to make a deal with the US, noting that a fleet of US warships entering the region is ready to complete their mission “with speed and violence.”
US MBA mortgage applications fell -8.5% in the week ended January 23, with the purchase mortgage sub-index down -0.4% and the refinancing mortgage sub-index down 15.7%. The average 30-year fixed rate mortgage rose +8 bp to 6.24% from 6.16% in the prior week.
As expected, the FOMC voted 10-2 to keep the fed funds target range unchanged at 3.50%-3.75%. The post-FOMC statement said economic activity has been expanding at a solid pace and inflation remains somewhat elevated. The FOMC also said, “job gains have remained low, and the unemployment rate has shown some signs of stabilization,” and dropped language from the prior meeting that said downside risks to employment have increased.
Fed Chair Powell said the Fed is well-positioned and can afford to wait for incoming data before making its next move on interest rates. He added that the economy has once again surprised us with its strength, and there’s been a disconnect between surveys and spending.
Threats to stocks and the dollar remain. President Trump has threatened new 100% tariffs on US imports from Canada, the possibility of a US government shutdown over ICE funding, and lingering concerns about Greenland. In addition, there is the risk of another partial government shutdown. Senate Democrats threatened to block a government funding deal over Department of Homeland Security/ICE funding after the ICE shooting of an ICU nurse in Minnesota on Saturday. There could be a partial government shutdown when the current stopgap funding measure expires this Friday.
The market’s focus this week will be on new tariff news and the prospects for a continued resolution (CR) to fund the government. On Thursday, initial weekly unemployment claims are expected to increase by 5,000 to 205,000. Also, Q3 nonfarm productivity is expected to be unrevised at 4.9%. In addition, the Nov trade deficit is expected to widen to -$44.10 billion. Finally, Nov factory offers are expected to increase by +1.6% m/m. On Friday, Dec PPI final demand is expected to ease to +2.8% y/y from +3.0% y/y in Nov, and Dec PPI ex-food and energy is expected to ease to +2.9% y/y from +3.0% y/y in Nov. Also, the Jan MNI Chicago PMI is expected to climb by +0.8 to 43.5.
Q4 earnings season is in full swing, with 102 of the S&P 500 companies scheduled to report earnings this week. Microsoft, Meta Platforms, and Tesla report earnings results after today’s close, and Apple reports after the close on Thursday. Earnings have been a positive factor for stocks, with 81% of the 106 S&P 500 companies that have reported beating expectations. According to Bloomberg Intelligence, S&P earnings growth is expected to climb by +8.6% in Q4. Excluding the Magnificent Seven megacap technology stocks, Q4 earnings are expected to increase by +4.6%.
The markets are discounting a 13% chance for a -25 bp rate cut at the next policy meeting on March 17-18.
Overseas stock markets settled mixed on Wednesday. The Euro Stoxx 50 fell from a 1.5-week high and closed down by -1.02%. China’s Shanghai Composite rose to a 2-week high and closed up +0.27%. Japan’s Nikkei Stock 225 closed up +0.05%.
Interest Rates
March 10-year T-notes (ZNH6) on Wednesday closed down by -5 ticks. The 10-year T-note yield rose +1.4 bp to 4.247%. Wednesday’s rally in WTI crude oil to a 4-month high boosted inflation expectations and undercut T-note prices. T-