A Surge in Chipmakers Powers Stocks to Record Highs Amidst Ukraine Talks

A rally in the chipmaker sector propelled equity markets to unprecedented heights, while ongoing US-Russia negotiations kindled optimism for a resolution to the Ukraine conflict.

The S&P 500 surpassed its previous record set in January, amid uncertainties stemming from tariffs, inflation, and geopolitical tensions. According to Matt Maley of Miller Tabak + Co., a decisive breakout above the previous high would serve as a catalyst for the market.

The S&P 500 gained 0.2%, while the Nasdaq 100 rose 0.2%. The Dow Jones Industrial Average remained largely unchanged. A key index for chipmakers surged by 1.7%. Intel Corp. shares ascended amidst rumors of a potential breakup, while Super Micro Computer Inc. soared on positive outlook. Meta Platforms Inc. witnessed a halt to its 20-day rally.

The yield on 10-year Treasuries increased by seven basis points to 4.55%. The US dollar index advanced by 0.2%. Bitcoin experienced a 2.3% decline.

"While we anticipate increased volatility in the short term due to macroeconomic uncertainties, positive fundamentals should continue to support global equities' growth," stated Solita Marcelli of UBS Global Wealth Management.

Craig Johnson of Piper Sandler emphasized the market's resilience year-to-date, as investors remained steadfast. "We expect market volatility to persist as investors rotate to smaller-cap stocks amid declining Treasury yields, weakening crude oil prices, and a pullback in the US dollar," he added.

A survey by Bank of America Corp. revealed that global stocks have become the most sought-after asset class among investors, with risk appetite at its highest in 15 years. The survey also indicated a decline in fund managers' cash reserves to their lowest levels since 2010, while 34% of respondents predicted global equities to outperform all other asset classes by 2025. A net 11% expressed an underweight position in bonds.

"Investors are heavily invested in stocks and shorting everything else," observed strategist Michael Hartnett. Approximately 89% of respondents deemed US equities to be overvalued, the highest level since at least April 2001.

"Investors require more favorable economic data to offset last week's 'whiff of stagflation' and a less hawkish stance from Fed officials," said Tom Essaye of The Sevens Report.

"Stabilizing yields and solid earnings would provide additional impetus for equity markets as the holiday-shortened trading week commences," he noted.

However, the robust fourth-quarter earnings season notwithstanding, a concerning development has emerged that may hinder the bullish outlook for US stocks: a deterioration in corporate profit outlook.

According to data compiled by Bloomberg Intelligence, a measure of forward earnings comparing company forecasts to analyst projections has reached its lowest point in a year, having plummeted to levels last seen in 2016 earlier this month.

BofA strategists, including Ohsung Kwon and Savita Subramanian, indicated that despite the majority of S&P 500 companies reporting positive results, earnings per share have increased by only 13% year-over-year, the highest since the fourth quarter of 2021. Nevertheless, corporate guidance has been weak, even as BofA's Corporate Sentiment Score, which gauges the sentiment expressed in earnings calls, ascended to record levels.

Corporate Highlights:

* Elon Musk's artificial intelligence venture, xAI, unveiled an updated version of its Grok-3 model, presenting a chatbot technology rivaling OpenAI's offering, days after the billionaire's unsolicited cash bid to acquire the company was rejected.
* Walgreens Boots Alliance Inc. shares surged following speculation reported by CNBC that a privatization deal with private equity firm Sycamore Partners remains a possibility.
* Southwest Airlines Co. announced plans to eliminate approximately 1,750 leadership positions, marking the carrier's first layoffs in history.
* Constellation Brands Inc. experienced a jump in share price after Berkshire Hathaway Inc. disclosed a new position in the beer and spirits company.
* Frozen food company Conagra Brands Inc. fell after reducing its fiscal 2025 guidance.
* Medtronic Plc declined after the medical device manufacturer reported lower-than-expected revenue for its fiscal third quarter.
* United Rentals Inc. abandoned its plan to acquire H&E Equipment Services Inc., declining to increase its original offer of $3.4 billion for the rival construction equipment supplier.

Upcoming Key Events:

* New Zealand rate decision (Wednesday)
* Fed minutes (Wednesday)
* China loan prime rates (Thursday)
* Eurozone consumer confidence (Thursday)
* US initial jobless claims, Philadelphia Fed manufacturing index (Thursday)
* Remarks by Fed's Austan Goolsbee and Alberto Musalem (Thursday)
* Eurozone HCOB manufacturing & services PMI (Friday)
* US S&P Global manufacturing & services PMI, existing home sales, consumer sentiment (Friday)

Market Performance:

* Stocks:
* S&P 500: +0.2%
* Nasdaq 100: +0.2%
* Dow Jones Industrial Average: Little change
* MSCI World Index: +0.2%
* Currencies:
* Bloomberg Dollar Spot Index: +0.2%
* Euro: -0.4% vs. US dollar
* British pound: -0.2% vs. US dollar
* Japanese yen: -0.4% vs. US dollar
* Cryptocurrencies:
* Bitcoin: -2.3%
* Ether: -5.2%
* Bonds:
* 10-year Treasury yield: +7 basis points to 4.55%
* 10-year German yield: Little change at 2.49%
* 10-year British yield: +3 basis points to 4.56%
* Commodities:
* West Texas Intermediate crude: +1.5% to $71.77 per barrel
* Gold: +1.3% to $2,933.84 per ounce

This article was generated with the assistance of Bloomberg Automation.