U.S. markets opened the year on a sour note, with all major indexes declining on Thursday after giving up earlier gains. The U.S. dollar index reached its highest level in over two years, while the pan-European Stoxx 600 index saw a 0.6% increase, reversing initial losses, led by gains in oil and gas stocks which rose by 2.3%. However, Europe’s banking index slipped by 0.3%.
Shares of Tesla fell 6.1% after the company reported a year-on-year decrease in fourth-quarter deliveries, marking its first annual drop. This figure also fell short of expectations set by analysts.
In the realm of corporate governance, Meta is set to replace its president of global affairs, Nick Clegg, with Joel Kaplan, the current policy vice president. This move signals how tech companies are adjusting to the incoming administration of President-elect Donald Trump.
Meanwhile, Ukraine halted the flow of Russian gas to several European nations on New Year’s Day, a move anticipated by many. Russia’s Gazprom confirmed the cessation, with the European Commission working to prepare the bloc for such developments, although some countries remain more vulnerable than others.
Investor Sentiment at Euphoria Levels
Despite a rough close to December, investor optimism remains high. A Bank of America barometer shows that investor sentiment is nearing euphoria, which historically signals a time to consider selling. Equity strategist Savita Subramanian discusses the implications for investors in the current climate.
As trading commenced on the first day of the year, initial gains quickly faded, leading to a decline in major indexes. The Dow Jones Industrial Average fell 0.36%, the S&P 500 dropped 0.22%, and the Nasdaq Composite decreased by 0.16%. This marks the S&P and Nasdaq’s longest losing streak since April, having closed lower for five consecutive sessions.
The primary factor appears to be rising Treasury yields. After an initial dip, the 10-year Treasury yield began to rise, nearing 4.6% around noon U.S. time, coinciding with a significant downturn in stocks. Although the yield leveled off by the end of the day, persistently high yields pose a threat to equities, offering a safer investment return compared to stocks.
Analysts predict a more modest growth for the S&P 500 in 2025, forecasting a median gain of only 9%, far below the previous year’s surge of 23.31%. Under such circumstances, stocks may not provide adequate compensation for the risks compared to government bonds.
HSBC Chief Multi-Asset Strategist Max Kettner noted that a “hawkish pivot by the Fed” could drive yields higher, creating what he terms the “Danger Zone.” Despite current market volatility, Kettner believes this environment presents attractive entry points for investors, as strong fundamentals are still in place.
Ultimately, even a seemingly perilous path may lead to new opportunities ahead.
Credit: CNBC
