Equities end flat after the Fed-induced selloff

General market commentary

Equity markets were subdued on Thursday, with the Dow managing a marginal gain to break a ten-session losing streak – its longest since 1974 – while the S&P 500 and Nasdaq edged slightly lower. This followed a sharp sell-off on Wednesday, triggered by the Federal Reserve's announcement of a slower pace of rate cuts in 2025 than previously anticipated. Rising bond yields weighed on interest rate-sensitive sectors, with real estate underperforming, while utilities and financials led the S&P 500. In economic developments, the third-quarter GDP growth rate was revised up to an annualised 3.1%, highlighting continued robust economic momentum. Meanwhile, initial jobless claims fell to 220,000, well below expectations, further underscoring labour market strength. Overseas, Asian and European markets also closed lower as global bond yields continued to rise.

Despite recent volatility, optimism about the longer-term outlook for equities remains. The US economy is proving resilient, with strong consumer spending and business investment driving growth. Labour market conditions remain supportive, with unemployment below historical averages and steady job creation. Corporate profitability is also on an upswing, with analysts projecting robust earnings growth for the S&P 500 through 2025. However, monetary policy remains a key focus, as the Federal Reserve signalled interest rates could remain elevated for longer, and global central banks, including the Bank of England and Bank of Japan, weigh their own paths. As markets digest these factors, inflation data and interest rate expectations will continue to shape the trajectory of equities into the new year.

Latest market update

Asian equities traded in a flat-to-low range on Friday, with most markets nursing steep weekly losses as a hawkish Federal Reserve outlook dampened risk appetite. Japanese shares edged higher on stronger-than-expected inflation data, while Chinese and Hong Kong equities saw milder losses amid expectations of increased fiscal spending in 2025 to support growth.

US equity futures fell this morning after a Trump-backed spending bill was rejected in Congress, raising the prospect of a partial government shutdown amid holiday travel. The uncertainty adds to Wall Street’s recent losses following the Federal Reserve’s cautious outlook on rate cuts in 2025, with attention now turning to key PCE inflation data.

European equities closed sharply lower on Thursday, with the Euro STOXX 50 dropping 1.6% amid widespread selling triggered by the Federal Reserve's hawkish rate outlook. Tech and industrial heavyweights like ASML, Infineon, Siemens, and Schneider led declines, falling between 2.5% and 5%, while banks such as UniCredit and Santander also lost over 1%.

The US dollar remained strong on Friday, with the dollar index hovering around 108.4, its highest level since November 2022, as markets anticipated the latest PCE inflation data. Against the euro, the dollar continued to show strength, with the euro trading at 1.0361, reflecting pressure on the single currency amid the Federal Reserve's hawkish stance and the revised outlook of fewer rate cuts in 2025.

Oil prices fell in Asian trade on Friday and were set for a weekly loss of over 2%, pressured by a stronger dollar and concerns over slowing demand, particularly from China. Weighed down by Fed signals of higher-for-longer rates and uncertainty over U.S. supply and policy under Donald Trump, Brent traded at $72.49 and WTI at $69.07 a barrel.

The Bank of England decided to keep interest rates steady at its final meeting of the year, in line with expectations, due to concerns over persistent inflation and wage growth. Market expectations for future rate cuts have been scaled back, with around 50 basis points now predicted, down from an earlier forecast of 70 basis points.

Equities on the move

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

Accenture exceeded Wall Street estimates for Q1 revenue and profit, driven by growing demand for AI-powered services, with its GenAI business generating $1.2 billion in new bookings. The company raised its annual revenue growth forecast to 4%-7%, though its Q2 revenue outlook fell slightly below analyst expectations.

Nike's shares fell 0.5% in after-hours trading after a muted forecast overshadowed better-than-expected Q2 earnings, with revenue down 7.7% but exceeding estimates. New CEO Elliott Hill pledged to refocus on sport, curb excessive promotions, and invest in key product lines and retail partnerships to regain market share.

FedEx shares jumped over 8% in afterhours trading as it announced plans to spin off its less-than-truckload freight division into a separate public company within 18 months. The company reported Q2 earnings matching estimates but missed revenue expectations, while projecting fiscal 2025 earnings of $19.00 to $20.00 per share.

Lennar shares dropped 5.1% on Thursday after reporting lower-than-expected fiscal fourth-quarter results, with a decline in revenue and adjusted earnings. The company also projected a sequential decline in deliveries for the current quarter due to the impact of higher mortgage rates.

Palantir's shares rose 3% yesterday following UBS's Neutral rating initiation and news of an extended $400.7 million partnership with the U.S. Army. While UBS sees strong revenue growth ahead, it remains cautious due to Palantir's high valuation, trading at 49 times revenue and 124 times free cash flow.

Oppenheimer analysts have identified Uber as a top large-cap pick for 2025, maintaining an "Outperform" rating with a price target of $85 despite concerns over robotaxis and U.S. ride growth. They highlight Uber's strong fundamentals and believe the company is well-positioned to benefit from both near- and long-term growth, with a significant upside potential.

UBS has raised its price target for Netflix to $1040, citing the company’s strong content slate and its position to benefit from industry shifts. The firm expects Netflix to add 32 million subscribers in 2024 and 22 million in 2025, with growth further supported by price increases and increased ad revenue.

Bank of America downgraded Micron Technology to Neutral, citing a weaker-than-expected gross margin outlook and disappointing Q2 guidance. Despite strong trends in data centers and high-bandwidth memory, BofA lowered its earnings and price target for the company, citing pressure from the PC and phone markets on memory pricing.

TD Cowen reaffirmed its Outperform rating on Boeing and raised its price target to $200, citing improving fundamentals and a potential recovery after a challenging year. The bank expects Boeing's share price to rise swiftly, driven by strong free cash flow projections and a focus on core operations.

Upcoming data and events

The US PCE data for November is expected today, with forecasts centred on a monthly rise of 0.2%. Any deviation, particularly an increase of 0.3% or more, could influence expectations for future Fed rate cuts.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice.