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While most shares in the S&P 500 fell, dip buying fueled gains in Wall Street’s most influential group. A gauge of the “Magnificent Seven” megacaps climbed 2%. NVIDIA Corp hit a record high ahead of chief Jensen Huang’s speech. Banks rose on deregulation optimism, with Michael Barr stepping down as the Federal Reserve’s vice chair for supervision. The news also fueled a steepening of the Treasury curve, with longer maturities underperforming. The yield on 30-year bonds hit the highest since late 2023.
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Scott Rubner at Goldman Sachs Group Inc. sees signs of a short-term tactical bullish setup for US stocks, driven by institutional money flows and a lack of selling across trend-following systematic funds. At JPMorgan Chase & Co., Andrew Tyler said while risks to the fierce rally are mounting, a bearish downturn remains “extremely unlikely” amid strong economic growth.
“The recovery we’ve seen Friday and today shows just how strong the ‘buy the dip’ mentality still is,” said Mark Hackett at Nationwide. “Investors continue to lean heavily on tech. Looking ahead, 2025 won’t be a year for easy double-digit gains by solely investing in the S&P 500. Success in this market will require more discipline and creativity.”
The S&P 500 rose 0.6%. The Nasdaq 100 added 1.1%. The Dow Jones Industrial Average was little changed. American Airlines Group Inc. jumped on a trio of analyst upgrades. Citigroup Inc. also gained on a bullish call. Tencent Holdings Ltd. depositary receipts slid as the US added the company to its Chinese military blacklist.
The yield on 10-year Treasuries rose two basis points to 4.62%. The Bloomberg Dollar Spot Index fell 0.6%. The loonie gained as Prime Minister Justin Trudeau quit after more than nine years leading Canada. Bitcoin topped $100,000. Oil halted a five-session rally.
Lori Calvasina at RBC Capital Markets says investor exuberance in the stock market is starting to “self-correct” as a measure of sentiment and positioning fell into the year-end.
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“While this doesn’t tell us that the recent period of malaise in the stock market is over, we do think this deterioration in sentiment is good news for the stock market longer term,” she wrote.
The S&P 500’s December pullback didn’t prevent clients from being net buyers in nine of 11 sectors last month, according to Chris Larkin at E*Trade from Morgan Stanley.
“While there may have been a defensive element to some of the buying in utilities and real estate, the push into the consumer discretionary sector suggested more of a ‘risk-on’ mindset — led by purchases of TSLA and AMZN,” he noted.
Traders are also gearing up for Friday’s jobs report, which is expected to show employers tempered hiring to wrap up a year of moderating yet still-healthy labour market. The data is unlikely to alter the view of Federal Reserve officials that they can slow the pace of rate cuts amid a durable economy and inflation that’s gradually dissipating.
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Fed Governor Lisa Cook said Monday that policymakers can proceed more cautiously amid a sturdy labour market and lingering inflation pressures.
US stocks are becoming rate sensitive again, with breadth narrowing after the US 10-year Treasury yield rose above 4.5%, according to Morgan Stanley strategists led by Michael Wilson.
“In order to see the return of a ‘good is good’ backdrop where hotter economic data drives upside in stocks even amid higher rates, we likely need to see more convincing evidence that animal spirits are inflecting and translating into stronger economic activity,” they wrote.
Notwithstanding fewer likely rate cuts, Solita Marcelli at UBS Global Wealth Management sees a favourable backdrop ahead — driven by a mixture of lower borrowing costs, resilient US activity, a broadening of US earnings growth, further AI monetisation, and the potential for greater capital market activity under a second Trump administration.
“We expect the S&P 500 to hit 6,600 by end-2025 and suggest that under-allocated investors consider using any near-term turbulence to add to US stocks, including through structured strategies,” she noted. The gauge closed at 5,975.38 on Monday.
