Equities divergence on increased geopolitical tension

General market commentary

US equity markets rebounded strongly on Tuesday following an initial decline driven by escalating geopolitical tensions. Early in the session, news of Russia lowering its threshold for a nuclear strike and the U.S. approving long-range missile usage by Ukraine weighed on sentiment, overshadowing Walmart's solid earnings and anticipation for Nvidia's results today. However, as the day progressed, these concerns eased, and shares clawed back, supported by strength in mega-cap technology firms. By the close, the S&P 500 gained 0.4%, while the Nasdaq advanced 1.04%, though the Dow Jones Industrial Average slipped 0.28%.

Technically, the 20-day S&P 500 moving average near 5,860 represents a key level. The index hasn’t closed below that line on the charts since before the election, signalling its importance as a support level in the current trend.

The market's ability to "buy the dip" highlights resilient investor confidence underpinned by a strong economy, anticipation of a more business-friendly U.S. administration, and a Federal Reserve maintaining accommodative policies. Technology and communication services led the gains, while defensive sectors such as real estate and utilities also found favour amid geopolitical uncertainty. Treasuries rallied, driving yields lower, as investors sought traditional safe havens, with the Cboe Volatility Index retreating from early highs. However, financials weighed on the Dow, reflecting broader sector rotation and volatility as year-end positioning continues.

Latest market update

US equity futures advanced this morning as investors awaited Nvidia's earnings report, focusing on demand for its Blackwell AI chips amid optimism for the AI sector. Markets largely moved past geopolitical concerns, with attention shifting to Federal Reserve commentary and potential impacts on monetary policy.

Asian equities traded in a tight range on Wednesday, with technology shares cautious ahead of Nvidia's earnings and Chinese markets under pressure after lending rates were kept unchanged. Japan's Nikkei and TOPIX dipped on a widening trade deficit, while South Korea's KOSPI rose 0.5%, recovering from recent lows.

US equities saw mixed company performances on Tuesday, with Nvidia surging 4.9% ahead of its earnings report and Tesla gaining 2.1%, extending its monthly rally to 38%. Walmart climbed 3% on strong earnings, while Super Micro Computer led the S&P 500 with a 31.2% jump, and Alphabet and Amazon rose 1.6% and 1.4%, respectively, bolstering the tech sector.

European shares fell yesterday, with the Stoxx 50 dropping 0.9% as most sectors declined. Banking (-1.4%) and travel (-1%) led losses amid heightened geopolitical tensions, while healthcare gained 0.6%. On the corporate front, Rheinmetall surged 3.9% to a record high, while Nestlé fell 1.9% on cost-cutting announcements, and Caixabank dropped 5% following its strategic update.

The yield on the US 10-year Treasury note stabilised around 4.4% early Wednesday morning after yesterday’s volatility tied to geopolitical tensions between Russia and Ukraine. With concerns easing, focus has shifted to comments from Federal Reserve officials for clues on interest rate policy and Donald Trump’s political appointments, including the next Treasury Secretary.

The US dollar weakened to a one-week low on Wednesday, continuing its decline for a third consecutive day, with the dollar index dropping to 106.07. The euro held steady at $1.0598, recovering from earlier losses, as investors await further developments in US monetary policy and Trump's cabinet appointments.

Oil prices steadied this morning amid concerns over the Russia-Ukraine conflict, although a surprise build in US oil inventories capped gains. Brent crude held at $73.31 per barrel, while WTI crude remained at $69.22, as traders balanced geopolitical tensions with the prospect of oversupply.

Equities on the move

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

Lowe's fell 4.6% after it beat analysts' quarterly earnings and revenue estimates and raised guidance, with some recent firmness coming after last month's hurricanes. Still, the company cited continued softness in do-it-yourself, bigger-ticket discretionary demand. Though Lowe's raised guidance, the increase wasn't dramatic.

Walmart climbed 3% after it raised its holiday forecast and beat analysts' top- and bottom-line forecasts in earnings released yesterday. Comparable sales at stores open a year or more climbed 5.3% excluding fuel, a sequential improvement.

Rheinmetall aims for €20 billion in sales and an 18% operating margin by 2027, driven by increased EU and NATO defence spending, U.S. market expansion, and a joint venture with Leonardo. The company expects to surpass €10 billion in annual sales in 2024 after a 36% sales rise this year.

Uber recent share price weakness presents an attractive entry point, according to Jefferies analysts, who believe the impact of autonomous vehicle competition on its rideshare business will be minimal. They see Uber as well-positioned to benefit from robotaxi partnerships, with a "buy" rating and a $100 price target.

Siemens was downgraded to "neutral" from "buy" by BofA Securities on concerns over limited earnings growth and uncertainties in its Digital Industries segment. The firm lowered its price target to €200, reflecting slower growth prospects and a cautious outlook for 2025.

Super Micro Computer's compliance filing has alleviated delisting concerns, with analysts from Lynx Equity Strategies emphasising its crucial role in the AI data centre market. They predict a potential short-squeeze in SMCI shares, while also suggesting that competitors like Dell may see share price declines as a result.

Qualcomm was downgraded by President Capital Management due to challenges including regulatory risks, Apple’s shift to in-house modem chips, and slowing growth in its licensing business.

Palantir's shares have seen significant multiple expansion, with Jefferies analysts warning that its current 43x revenue multiple is unsustainable. They have set a price target of $28, implying a nearly 60% downside from current levels, and pointed to increased insider selling as a potential negative factor for the equity.

Datadog has been highlighted by TD Cowen analysts as a top equity for 2025, citing its leadership in the observability space, strong revenue growth, and high margins. With a solid market position and strong growth prospects, particularly in AI and cloud, analysts set a price target of $165, offering a 30% upside from its current price.

Upcoming data and events

The day ahead features highly anticipated earnings from Nvidia, Target, and Palo Alto Networks, alongside key economic data including U.S. Producer Price Index (PPI) figures, jobless claims, and energy inventory reports. A speech by Federal Reserve Chair Jerome Powell will also be closely watched for insights into future policy

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