China mulls TikTok sale to Musk

General market commentary

Equities finished mostly higher on Monday, with the S&P 500 rebounding from a two-month low as U.S. Treasury yields remained elevated. Investors have scaled back expectations for the pace of interest rate cuts by the Federal Reserve, as inflation remains above target and the economy continues to show robust growth. The Dow Jones Industrial Average rose nearly 0.9%, buoyed by a 4% jump in UnitedHealth Group shares after the Biden administration proposed a 2.2% increase in Medicare Advantage payment rates for 2026. However, the Nasdaq declined by 0.4%, weighed down by a 2% drop in Nvidia following news of tighter U.S. restrictions on AI chip exports, and a sharp 17% slide in Moderna, which cut its 2025 sales forecast by $1 billion.

Meanwhile, the benchmark 10-year U.S. Treasury yield climbed to 4.8%, its highest level in 14 months, reflecting expectations of stickier inflation and limited rate cuts from the Fed. Despite this pressure, the S&P 500 remains only about 4% off its all-time highs, with the Nasdaq down around 5%. Market corrections of 5%-15% are typical in any given year, and with the U.S. economy continuing to outperform expectations and corporate earnings remaining strong, severe or prolonged bear markets appear unlikely. However, heightened sensitivity to economic data persists, as investors monitor signs of potential economic weakness, which could amplify market volatility in the months ahead.

Latest market and economic update

Asian equities were mixed on Tuesday, with Chinese shares surging on reports of a gradual U.S. tariff increase, while Japanese shares led losses amid scaled-back expectations for U.S. rate cuts in 2025. The Shanghai Shenzhen CSI 300 rose 2%, while Japan’s Nikkei 225 fell 1.7%, with regional markets also awaiting key economic data this week.

U.S. equities are expected to open slightly higher on Tuesday as concerns over disruptive trade tariffs under President-elect Donald Trump eased following reports of a gradual tariff hike plan. Focus is also on the start of earnings season, with major banks set to report results, while rising bond yields weigh on growth shares.

European shares fell on Monday, with the STOXX 50 and STOXX 600 dropping 0.5% amid concerns over rising bond yields and inflation. Tech and consumer discretionary shares, including ASML and Ferrari, led losses, while banks like BBVA and ING gained, alongside energy firms TotalEnergies and ENI.

The U.S. dollar remained near a 26-month high, supported by strong economic data, elevated Treasury yields, and reduced expectations for rate cuts in 2025. The euro hovered close to a two-year low at $1.02475, pressured by the dollar's strength and lingering inflation concerns.

Oil prices eased slightly in Asian trading on Tuesday, retreating from a four-month high driven by new U.S. sanctions targeting Russian oil exports. Concerns over supply disruptions and a strong U.S. dollar weighed on prices, with Brent at $80.77 and WTI at $77.12 per barrel.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Chinese officials are reportedly considering selling TikTok’s U.S. operations to Elon Musk if a proposed ban by U.S. authorities proceeds, though ByteDance prefers to retain ownership. The potential ban, linked to national security concerns, has intensified ahead of a January 19 Supreme Court deadline, with a sale potentially aligning TikTok's management with Musk's approach to Twitter, now "X."

Nvidia is facing delays in deploying its Blackwell AI chips due to overheating and connectivity issues, impacting major customers like Microsoft and Amazon. Despite the setbacks, Nvidia remains optimistic about the chip's potential, with hopes that resolving the issues could lead to increased orders.

Robinhood has agreed to pay $45 million to settle SEC charges over record-keeping, trade reporting, and rule violations, including failures in retaining work-related communications and addressing cybersecurity risks. The firm admitted to the breaches and stated its commitment to compliance and innovation under the SEC's oversight.

Cleveland-Cliffs is considering an all-cash bid for U.S. Steel, in partnership with Nucor, with a potential offer in the high $30s per share. The move aims to counter Nippon Steel's $14.9 billion bid, which has faced political and legal challenges, including a block by President Biden.

Arm Holdings is considering raising its prices by up to 300% and potentially designing its own chips, competing with its major customers like Apple and Qualcomm. This shift is part of the company’s strategy to increase revenue, with a goal of boosting annual smartphone revenue by $1 billion over the next decade.

Honeywell is reportedly planning to break up into two separate companies focusing on automation and aerospace/defense, following pressure from Elliott Investment Management. The split, which may be announced with Honeywell’s Q4 earnings in February, could unlock significant value, with analysts suggesting a higher share price than its current valuation.

Abercrombie & Fitch raised its net sales forecast for both the fourth quarter and the entire fiscal year of 2024, driven by record sales and strong performance across all regions and brands during the holiday season. Despite the positive outlook, shares fell over 15% in regular trading on Monday, reflecting investor concerns, even as CEO Fran Horowitz expressed confidence in the company's growth and operating margin projections, aiming to exceed the targets set by the Always Forward Plan 2025.

Pfizer is focusing on the development of its experimental obesity drug, danuglipron, and plans to begin a late-stage study later this year. The company aims to offer a more convenient oral alternative to the injectable weight-loss drugs dominating the market, with a competitive profile to rival those of Eli Lilly and Novo Nordisk.

Commerzbank's chairman, Jens Weidmann, expressed scepticism over a possible merger with UniCredit, following the Italian bank's surprise purchase of a large stake in the German lender. He warned that the move could hurt Germany's financial sovereignty and undermine Frankfurt's status as a financial hub.

Global sales of electric and plug-in hybrid vehicles rose 25.6% in December, reaching over 17 million cars in 2024, with strong growth in China. However, the removal of subsidies in Europe and potential policy changes in the US could impact future sales.

Teladoc shares rose 4.4% in aftermarket trading after announcing its diabetes, hypertension, and weight-management programs will be available on Amazon's Health Benefits Connector. This collaboration provides Teladoc access to a broader user base, complementing its existing 1 million active chronic conditions users.

Quantum computing shares fell sharply on Monday, with shares of several firms dropping between 13% and 34%, following comments from Meta CEO Mark Zuckerberg and Nvidia's Jensen Huang questioning the technology's near-term viability. Despite a breakthrough by Google, both executives suggested quantum computing could be over a decade away from practical use, dampening investor optimism.

HSBC lowered its target price for Nvidia from $195 to $185, citing supply chain issues affecting the GB200 chip in the first half of fiscal 2026. Despite these challenges, Nvidia's long-term AI demand remains strong, with a stronger second half of fiscal 2026 expected to meet revenue forecasts.

Needham & Company upgraded KLA Corp to Buy and named Onto Innovation its top pick for 2025, citing their strong positioning in AI growth and reduced exposure to China. The analysts revised their 2025 wafer fab equipment outlook down to $100 billion, expecting a downturn by the second half of 2026, and downgraded four shares to Hold.

TD Cowen downgraded STMicroelectronics to "Hold" and reduced its price target, citing inventory pressures and weak demand in the automotive and industrial sectors. The firm expects continued challenges in 2025, with lower revenue and margins, making it difficult to see near-term upside for the equity.

Evercore ISI upgraded Chewy to "Outperform" with a raised price target of $47, citing a stronger growth outlook and improved fundamentals. The firm highlighted Chewy's market leadership, potential for gross margin expansion, and strong free cash flow growth over the next three years.

Needham upgraded Instacart to "Buy" with a $56 price target, citing strong 2024 results and the potential for M&A, particularly with Uber. The firm projects low-teens GTV growth and sees a bull case valuation of $80, offering up to 80% upside.

Upcoming data and events

Today, the U.S. will release key economic data including the Producer Price Index (PPI) and the NFIB Business Optimism Index, both expected to provide insights into inflation and business sentiment. In Europe, the focus will be on the Eurozone Industrial Production figures, which will shed light on economic activity in the region.

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