Stocks started the year off on the wrong foot Tuesday as big tech stocks tumbled, weighing on the Nasdaq Composite, which lost 1.6%, and the S&P 500, down 0.6%. The Dow Jones Industrial Average staged an eleventh-hour rally to close about 0.1% higher.
The major indexes were dragged down by tech mega caps like Apple (AAPL), which fell after being downgraded by Barclays, and Nvidia (NVDA), one of several semiconductor stocks to retreat after the Dutch government instructed ASML Holdings (ASML)—a leading supplier of chipmaking equipment—to halt some shipments to China.
Bitcoin surged to more than $45,000 Tuesday as investors awaited the Securities and Exchange Commission's decision—due by Jan. 10—on at least one of the spot Bitcoin ETF applications before it.
Equity Indexes Wrap: Healthcare Stocks Lead the Dow Higher While Tech Mega Caps, Chip Stocks Torpedo the Nasdaq :
Intel (INTC) led the index lower, falling 4.9% alongside other chip stocks after Dutch semiconductor manufacturing equipment maker ASML said it would restrict shipments of some technology to China at the Dutch government’s behest.
Apple (AAPL) lost 3.6% after Barclays downgraded the stock to “underweight,” citing disappointing iPhone 15 sales and a grim outlook for its hardware business.
Boeing (BA) shares fell 3.4% after Goldman Sachs analyst Noah Poponak took the stock off his conviction list.
Salesforce (CRM) and Microsoft (MSFT) fell 2.6% and 1.4%, respectively, as investors took profits from each stock’s major gains last year.
Along with Bancel’s comments, Moderna shares got a lift Tuesday when brokerage firm Oppenheimer upgraded the stock to "outperform," arguing that Moderna could develop ways to use its mRNA technique to fight diseases beyond COVID-19 over the next few years. Analysts at Oppenheimer led by Hartaj Singh wrote they believe the company will have five new products on the market by 2026.
Despite the upbeat sentiment, some on Wall Street worry that the market may be overly optimistic, which could lead to disappointment if the Federal Reserve starts cutting rates later than expected, said CFRA’s Stovall. Fed funds futures pricing reflects a significant probability of rate cuts as early as next March, according to CME Group’s FedWatch tool.
“Expectations are very high right now,” said Julie Biel, a portfolio manager and chief market strategist at Kayne Anderson Rudnick. “That always makes me nervous because I feel like that can really set you up for heartbreak. The Fed still seems very keen to not make the mistakes of the 1970s.”
Elsewhere, CFRA’s Stovall notes that 90% of stocks in the S&P 500 are trading above their 50-day moving average, suggesting a “bit of frothiness” in the market. Recent bullish sentiment data showing overexcitement could also put investors at risk of getting “sideswiped” by unanticipated events.
Fundstrat expects ongoing rally into year end, remains ‘constructive’ on 2024:
Fundstrat’s Tom Lee is bracing for continued upward momentum in stocks into the end of the year, and sees a “constructive” setup in 2024.
’We lean that markets will rally into YE, given the strength of December already (up +5%),” wrote the head of research in a note to clients. “Given the trailing performance of fund managers, and the notion of “never short a dull market,” we see the drift higher into the final days of 2023.”
Looking ahead, the firm also believes that stocks and the S&P 500 sit at attractive valuations on a price-to-earnings basis.
Lee highlighted fInancials as the firm’s favorite large cap pick with a good risk-reward. Meanwhile, small caps sit at lows on a price-to-book basis, which could set them up for a 12-year cycle of outperformance, he wrote.
“We remain constructive into 2024,” Lee wrote, noting that the first half may have some bumps. “While some complain valuations are expensive, this argument is a shallow view of the reality.”
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