Mega caps drive market up at start of month

General market commentary

The market "melt-up" extended into the new month, propelling two major indexes to fresh record highs, primarily driven by a surge in tech shares. Apple, Tesla, Meta Platforms, Microsoft, Alphabet, and Amazon all posted significant gains, with the semiconductor sector also benefiting from strong buying momentum. This rally in equities coincided with a rise in Treasury yields, although investors are increasingly optimistic about a potential Federal Reserve rate cut later this month. The chances of a 25-basis-point reduction at the upcoming Fed meeting now stand at around 75%, up from roughly 67% late last week. This shift in sentiment was partly influenced by remarks from Fed Governor Christopher Waller, who expressed a leaning towards supporting a rate cut, given the ongoing decline in inflationary pressures.

However, the broader market dynamics showed some divergence, with most sectors experiencing declines on Monday. While mega-cap equities dominated the index gains, rate-sensitive sectors such as real estate and utilities took a significant hit, possibly due to concerns about future interest rate policies. The semiconductor sector was in focus, especially following Intel’s CEO resignation, although the broader rally was bolstered by more optimistic interpretations of US trade export restrictions on semiconductor technology to China. Despite the strong performance of major tech shares, declining equities outnumbered advancing ones, which could signal a potential slowdown in the broader market rotation away from big tech.

Latest market update

• Asian equities saw broad gains on Tuesday, driven by strong performances in the tech sector, with Japan’s Nikkei and South Korea’s KOSPI both rising significantly. However, Chinese equities faced pressure, with Hong Kong’s Hang Seng and mainland blue chips posting modest declines.

• US equity futures are expected to open largely flat, with market attention focused on upcoming economic data and key Federal Reserve speeches this week.

• The Euro STOXX 50 rose by 1% on Monday, driven by strong performances from major equities such as Novo Nordisk, LVMH, and Hermes International. However, political uncertainty in France and a drop in Stellantis shares following CEO Carlos Tavares' resignation tempered investor sentiment.

• The US dollar strengthened on Tuesday, bolstered by political turmoil in France and ongoing tariff risks, pushing the euro lower to $1.0495. The dollar’s momentum was further supported by improving US manufacturing data and concerns over China's weakening economy, while expectations of a US rate cut remained uncertain ahead of Friday's employment data.

• Oil prices were little changed in Asian trade, as traders awaited US economic data and the OPEC+ meeting later this week. Market sentiment is clouded by concerns over weak demand, a strong dollar, and geopolitical tensions, particularly between Russia and Ukraine.

• Equities on the move

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

• Tesla shares fell 1.3% in after-hours trading following a Delaware court's reaffirmation that Elon Musk's $56 billion compensation package was excessive and invalid. The company plans to appeal the decision, and analysts expect a revised pay plan aligned with shareholder priorities amid ongoing challenges in the EV market.

• Super Micro Computer 's shares surged nearly 29% after an independent review cleared management and the audit committee of fraud or misconduct, confirming the accuracy of its financial statements. The company also announced plans to strengthen its leadership with new senior appointments, and Bridgewater Associates, a hedge fund, increased its holdings in the company in the third quarter.

• ASML said new U.S. export restrictions on China would not impact its 2025 financial outlook, though they may affect sales of some lithography systems. The company expects long-term semiconductor demand to remain unchanged despite tighter controls on key technologies.

• Intel initially rallied but then sagged 0.50% after news that its CEO, Pat Gelsinger, retired. The retirement took effect last Sunday, and the company said it has named two senior leaders as interim co-CEOs while the board of directors conducts a CEO search. Gelsinger began his Intel career in 1979.

• SpaceX is reportedly in talks to sell insider shares at a valuation of around $350 billion, a significant increase from its $255 billion valuation in November. As one of the world’s most valuable private companies, SpaceX is set to secure more lucrative government contracts, bolstered by Elon Musk's growing influence in Washington.

• Honeywell revised its profit and sales forecasts downward for the fourth quarter and the full year due to investments in a new agreement with Bombardier to supply aviation technologies. The company lowered its Q4 sales outlook and adjusted earnings per share estimate, but expects up to $17 billion in potential revenue over the course of the agreement.

• Wedbush analysts see Tesla benefiting from regulatory support under the Trump administration, which could accelerate its AI and autonomous vehicle plans, driving a $2 trillion valuation within 18 months. They reiterated an Outperform rating with a $400 price target.

• Evercore ISI raised its price target for Netflix from $775 to $950, citing strong catalysts and solid survey results, with a 32X multiple on 2026 earnings per share. The firm sees Netflix in its strongest position ever, driven by improved churn, price sensitivity, and key content releases, but cautioned that the price target doesn't suggest significant near-term upside.

• Norwegian Cruise Line rose 5.4% and Carnival climbed 2.2% after Truist Securities raised its price targets on the cruise operators.

• Morgan Stanley upgraded Cloudflare to Overweight and raised its price target to $130, citing strong growth potential from its role in Edge AI, security, and networking. The firm believes Cloudflare’s expanding product offerings and strategic leadership will drive accelerated revenue growth, with a forecasted 25-30% annual growth by 2028.

Upcoming data and events

Today’s economic data includes the JOLTs Job Openings report, speeches from Fed officials Goolsbee and Kugler, and updates on US retail sales and economic optimism, while earnings reports from tech giants Salesforce and Marvell Technology are expected to shape market sentiment.

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