Stock Rally Stalls as Waller Remarks Boost Bonds: Markets Wrap

(Bloomberg) — Stocks struggled to make headway after a solid rally, while bond yields dropped on dovish remarks from Federal Reserve Governor Christopher Waller.

Wall Street also kept a close eye on comments from Treasury secretary nominee Scott Bessent, who said the US faces an economic crisis if the 2017 Republican tax cuts aren’t extended. Equities edged lower, following an almost 2% jump in the S&P 500. While most companies rose, a slide in tech megacaps dragged down the market. Not even solid earnings from Morgan Stanley and Bank of America Corp. buoyed benchmarks.

“Investors are hitting the pause button following yesterday’s momentous rally,” said Jose Torres at Interactive Brokers.

Treasuries rose as Waller told CNBC that officials could lower rates again in the first half of 2025 if inflation data continue to be favorable. He also wouldn’t entirely rule out a cut in March. Swap trading implied a little bit more easing this year.

The dollar hovered near two-year highs. Bessent stressed that maintaining the greenback as the world’s reserve currency is critical. When asked about any inflationary impact of President-elect Donald Trump’s economic plans, Bessent said he believed the policies will bring inflation closer to the Fed’s target.

The S&P 500 fell 0.2%. The Nasdaq 100 lost 0.7%. The Dow Jones Industrial Average slid 0.2%. A gauge of the “Magnificent Seven” megacaps slipped 1.9%. The Russell 2000 added 0.2%. The KBW Bank Index declined 0.2%.

The yield on 10-year Treasuries declined four basis points to 4.61%. The Bloomberg Dollar Spot Index rose 0.1%.

Despite the lack of strength in the equity market on Thursday, some traders pointed to a buy signal from the latest sentiment survey from the American Association of Individual Investors. 

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased to 25.4%. Optimism is unusually low and is below its historical average of 37.5% for the third time in seven weeks, AAII said.

“We consider sentiment indicators at the extremes as fairly reliable contrarian indicators,” said Larry Tentarelli at Blue Chip Daily Trend Report. “Investors tend to be most bullish at market highs and most bearish near market lows.”

A third straight year of outsize gains in US stocks — a display of strength last seen in the 1990s — leads Bank of America Corp.’s list of potential market surprises for 2025.

It’s a tall order but not unimaginable, according to the firm, which floats the idea in the latest rendition of its list honoring late Wall Street strategist Byron Wien.

After the S&P 500 Index soared 24% in 2023 and 23% in 2024, lofty valuations will make it tough to achieve such a performance again this year, as will risks including extreme concentration and uncertainty around fiscal and monetary policy, BofA strategists led by Jared Woodard wrote in a report this week.

As traders waded through corporate earnings, Thursday’s economic data was mixed. US homebuilders grew less upbeat about sales prospects, while retail sales figures pointed to a consumer that held up well in the holiday season. 

“In the coming weeks, the fourth-quarter earnings season will provide investors with an opportunity to shift some attention from macro to micro data,” said David Lefkowitz at UBS Global Wealth Management. “We continue to have an attractive view on US equities.”

Even a solid corporate earnings season is unlikely to fuel a sustained rally in equity markets. That’s the view of Helen Jewell at BlackRock Inc., who warned the outlook for stocks remained fragile over the coming weeks amid concerns around economic growth and inflation.

“It’s going to be a rocky reporting season, although not necessarily as much on the earnings number itself,” Jewell said in an interview. “My nervousness is more on how much beats get rewarded versus how much misses get hit, particularly in the US where the valuation multiple is very high.”

Meantime, investors have increased their exposure to the biggest technology stocks, and they appear to have little appetite for hedging less than two weeks before earnings season begins for the group.  

Discretionary investors have boosted their presence across megacap, growth and technology stocks to the highest level since July, according to data compiled by Deutsche Bank AG. And hedge funds are returning to the group after months of consistent selling in 2024.

Corporate Highlights:

• Morgan Stanley’s fourth-quarter profit more than doubled, boosted by trading revenue that came in well ahead of estimates on volatility tied to the US elections.
• Bank of America Corp. posted fourth-quarter profit that topped analysts’ estimates as investment-banking fees hit the highest in three years and net interest income outperformed forecasts.
• PNC Financial Services Group Inc. and U.S. Bancorp gave muted predictions for net interest income in the first quarter, amid uncertainty over how lower interest rates will revive lending demand.
• Microsoft Corp. is raising the price of its package of Office apps for consumers, a bet that subscribers will be willing to cough up more for access to new artificial intelligence tools.
• UnitedHealth Group Inc.’s elevated medical costs persisted in the fourth quarter and revenue missed estimates.
• Target Corp. raised its sales guidance following a better-than-expected holiday season, but the boost wasn’t big enough to ease investors’ concerns about profitability.
• American Express Co. will pay about $230 million to resolve a long-running investigation into some of the firm’s prior sales practices which regulators said misled small-business owners.
• Rio Tinto Group and Glencore Plc have been discussing combining their businesses, according to people familiar with the matter, in what could result in the mining industry’s largest-ever deal.
• Reliance Industries Ltd., controlled by billionaire Mukesh Ambani, posted a slightly better-than-expected quarterly profit, as gains from its telecom and retail units offset the volatility in its petrochemical business.
• Taiwan Semiconductor Manufacturing Co. projected quarterly sales and capital expenditure ahead of analysts’ estimates, fueling hopes that spending on AI hardware should remain resilient in 2025.

Key events this week:

• China GDP, property prices, retail sales, industrial production, Friday
• Eurozone CPI, Friday
• US housing starts, industrial production, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2% as of 4 p.m. New York time
• The Nasdaq 100 fell 0.7%
• The Dow Jones Industrial Average fell 0.2%
• The MSCI World Index was little changed
• Bloomberg Magnificent 7 Total Return Index fell 1.9%
• The Russell 2000 Index rose 0.2%
• KBW Bank Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.0298
• The British pound fell 0.1% to $1.2229
• The Japanese yen rose 0.8% to 155.22 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $100,262.36
• Ether fell 3% to $3,329.5

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.61%
• Germany’s 10-year yield declined one basis point to 2.55%
• Britain’s 10-year yield declined five basis points to 4.68%

Commodities

• West Texas Intermediate crude fell 1.7% to $78.66 a barrel
• Spot gold rose 0.7% to $2,714.48 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao, Margaryta Kirakosian, John Viljoen and Chiranjivi Chakraborty.

©2025 Bloomberg L.P.