Shares rise on prospects of softer tariffs

General market commentary

Equity markets in the U.S. closed mostly higher on Monday, driven by strong performances in growth sectors such as technology and communication services. The S&P 500 gained more than half a percent, and the Nasdaq rose by over one per cent, buoyed by a rally in semiconductor shares. Notable among these were Nvidia, Advanced Micro Devices, and Micron Technology, which saw impressive gains. The boost for chipmakers came from Microsoft's announcement of an $80 billion investment to develop AI-enabled data centres, which also lifted broader sentiment in the tech sector. Despite a marginal dip in the Dow, the broader optimism, particularly around technology, suggests a continued upward trend for markets in the near term.

In contrast, defensive sectors like utilities and consumer staples lagged, with the interest-rate-sensitive real estate sector also underperforming. Elsewhere, European markets rose following a report that President-elect Trump's tariff proposals might be scaled back to focus only on key industries like steel and aluminium, rather than applying universally to all imports. Although Trump later disputed the report, the U.S. dollar weakened in response, and bond yields ticked higher. Notably, shares in Ford and General Motors rose after the tariff report surfaced, though these gains were tempered when Trump refuted the story. Despite the volatility, the technology sector remains a key driver of market performance heading into the new year.

Latest market update

Asian equities generally advanced on Tuesday, with technology-heavy indices like Japan’s Nikkei and South Korea’s KOSPI seeing strong gains, supported by a rebound in tech shares. However, Chinese shares underperformed, weighed down by losses in Tencent and CATL, after both were added to a U.S. blacklist, heightening concerns over deteriorating trade relations.

U.S. equity futures edged higher on Tuesday, continuing the momentum from Monday's strong gains in the S&P 500 and Nasdaq, driven by a rally in technology shares. Investors are also hopeful that a potential narrowing of President-elect Trump's tariff plan could ease global trade concerns.

European equities closed higher on Monday, driven by optimism over a potential easing of U.S. tariffs, which boosted sectors like automobiles and luxury goods. The STOXX 600 rose 0.9%, with strong performances from France’s CAC 40, Germany’s DAX, and Spain’s IBEX 35, while the tech sector surged 3.9% on the back of Microsoft’s $80 billion AI investment.

The U.S. dollar index remained below 108.5 on Tuesday, pressured by speculation that the incoming Trump administration may adopt a more targeted tariff strategy. The euro strengthened to 1.0402 against the dollar as traders await key economic data and signals from the Federal Reserve on future interest rate policy.

The yield on the US 10-year Treasury note remained above 4.6% on Tuesday, staying near an eight-month high as investors awaited key economic data to gauge the Federal Reserve’s monetary policy stance. Markets are closely monitoring the upcoming jobs report, JOLTS data, and speeches from Fed officials for further clues on interest rate decisions.

Oil prices eased this morning, extending losses from the previous session, amid concerns about weaker global economic data and rising supply from non-OPEC countries. However, tightening Russian and Iranian supply due to sanctions helped limit further declines, supporting market sentiment.

Equities on the move

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

At the Consumer Electronics Show, Nvidia CEO Jensen Huang unveiled the new RTX 50 series GPUs, promising double the performance of the previous generation, and announced that the Blackwell AI chips were now in full production. Huang also highlighted Nvidia’s in-house AI models and the potential for "AI agents" to handle domain-specific tasks, underscoring the company’s central role in the AI boom.

The U.S. Department of Defense added several Chinese tech giants, including Tencent and CATL, to its annual list of companies with links to China’s military, sparking significant share price declines. While the companies, including Tencent and CATL, rejected the designation as a mistake, the move highlights growing tensions between the U.S. and China over security risks and trade practices.

Samsung Electronics is expected to report slower profit growth in the fourth quarter, with operating profit estimated to rise to 8.2 trillion won, down from the previous quarter due to ongoing challenges in meeting Nvidia's AI chip demand. Despite a weaker South Korean won providing some relief, lacklustre demand for traditional chips and rising competition from Chinese rivals have pressured prices and impacted earnings.

Plug Power shares surged by almost 20% after the Biden administration relaxed regulations on a key hydrogen production tax credit, benefiting companies in the hydrogen fuel sector. The updated guidelines are expected to boost domestic manufacturing and adoption of clean energy technologies, with a significant impact on Plug Power and its peers.

Ulta Beauty forecast a strong fourth-quarter performance, raising its annual sales and profit guidance after stronger-than-expected holiday demand. The company now expects annual sales between $11.1 billion and $11.2 billion, with profit ranging from $23.20 to $23.75 per share, signalling a rebound despite ongoing competition and economic challenges.

AbbVie lowered its 2024 adjusted profit forecast to $10.02-$10.06 per share, down from the previous range of $10.90-$10.94, citing $1.6 billion in acquisition and R&D expenses. The company also expects fourth-quarter adjusted profit to fall to $2.06-$2.10 per share, down from $2.79 last year.

MicroStrategy bought an additional 1,070 BTC for $101 million, continuing its aggressive Bitcoin acquisition strategy. Benchmark analysts maintain a "buy" rating with a $650 target, highlighting the company's growing Bitcoin holdings and its plans to raise $2 billion through perpetual preferred equity offerings.

Wedbush added Uber to its "best ideas list," citing strong fundamentals and an attractive risk/reward with shares trading at a low multiple of 12.8 times 2026 EBITDA. The firm expects minimal near-term impact from autonomous vehicles, given limited availability, and projects robust growth in Uber's core business and adjusted EBITDA through 2026.

Barclays upgraded Citigroup to "overweight," citing its improved earnings consistency and capital optimisation as it enters 2025. The bank set a price target of $95, with potential upside to $102, but flagged risks related to international exposure and U.S. consumer conditions.

New Street Research upgraded Tesla to "Buy" with a $460 target, citing strong growth potential from lower-cost models, cost reductions, and advancements in Full Self-Driving technology. The firm sees significant long-term upside, with a potential market cap of $4.7 trillion by 2030, though acknowledges near-term uncertainties as opportunities for long-term investors.

American Airlines' shares rose 4.5% after multiple Wall Street analysts upgraded their ratings, citing improved travel demand and a lucrative credit card partnership with Citigroup. The upgrades reflect confidence in the airline's strong market position, domestic growth, and the expected long-term benefits of its new credit card deal.

T-Mobile US shares dropped following downgrades by RBC Capital Markets and Wells Fargo, citing concerns over its valuation and slowing growth, with both brokerages lowering price targets. While the company maintains a strong subscriber base, analysts foresee decelerating growth and challenges in justifying its premium valuation compared to peers.

Piper Sandler upgraded Fortinet to "overweight" with a $120 price target, citing strong prospects for a firewall refresh cycle in 2025 and increased cybersecurity spending. The upgrade reflects optimism about Fortinet's position in the market amid rising IT budgets, geopolitical tensions, and generative AI threats.

Bernstein upgraded Adidas to "Outperform" with a new price target of €300, citing strong growth prospects and a projected 70% EPS CAGR over the next two years. The firm expects Adidas to recover market share, driven by popular products like Samba and Gazelle, and sees substantial margin improvement by 2026.

Citigroup downgraded CME Group to "neutral," expecting slower growth in 2025 after two years of strong performance, with revenue growth forecasted at just 4%. The bank lowered its price target to $250, citing a more muted outlook despite CME's defensive appeal in volatile markets.

Benchmark upgraded Lyft to "Buy" with a $20 price target, citing strategic initiatives like reduced surge pricing, expanded partnerships, and growth in the autonomous vehicle market. The analysts also highlighted Lyft's improving free cash flow, domestic focus, and potential for capital returns as key drivers of future growth.

Barclays upgraded Boeing to "overweight" with a $210 price target, citing improved free cash flow prospects and operational enhancements under new CEO Ortberg. The analysts expect Boeing to ramp up production successfully in 2025, with long-term growth driven by leadership changes and a reset in MAX production.

Upcoming data and events

Today, key economic data includes UK Halifax house prices, Italy’s CPI, France’s CPI, the Eurozone's HICP and unemployment rate, as well as the US ISM non-manufacturing PMI. Additionally, Federal Reserve Bank of Richmond President Thomas Barkin is scheduled to speak in Raleigh.

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