Tech shares continue to rise ahead of Fed decision

General market commentary

U.S. markets saw mixed performance on Monday, with the Nasdaq Composite reaching an all-time high, rising 1.2% to 20,173.9, buoyed by gains in technology shares and excitement around artificial intelligence. Broadcom surged 11% following last week’s 25% rally, while Honeywell led the Dow with a 3.7% gain after announcing it may spin off its aerospace division. The S&P 500 rose 0.4%, but the Dow Jones Industrial Average slipped 0.3% to 43,717.5, as energy equities lagged. Bond yields remained steady, with the U.S. 10-year yield holding near 4.4%, and markets are now focused on the Federal Reserve's policy decision on Wednesday, where another quarter-point rate cut is widely expected.

International markets underperformed, weighed down by concerns over China’s slowing retail sales, which raised expectations for further economic stimulus. Meanwhile, oil prices fell 1%, with WTI crude trading at $70.59 a barrel, and gold slipped 0.2%. In company news, Ford dropped 3.9% after a downgrade from Jefferies, while Super Micro Computer fell 8.3% following its impending removal from the Nasdaq index. Looking ahead, attention will turn to key corporate earnings from firms such as Accenture, Nike, and FedEx, as well as the Fed's signals on future rate cuts amid economic resilience and lingering inflation risks.

Latest market update

• Asian markets were mixed on Tuesday as investors awaited key interest rate decisions from major central banks, including the U.S. Federal Reserve, Bank of Japan, and others in the region. Weak Chinese retail data weighed on sentiment, with China’s Shanghai Composite falling 0.5% and Hong Kong’s Hang Seng dropping 0.5%, while Japan’s Nikkei rose 0.3%.

• US equity futures were little changed on Tuesday as investors awaited the Federal Reserve's policy decision on Wednesday, with markets widely anticipating a 25-basis-point rate cut and focusing on the central bank's outlook for 2025.

• European equity markets fell on Monday, with the Euro Stoxx 50 down 0.3%, as investors weighed weak regional data, Germany's political uncertainty, and France’s credit rating downgrade by Moody’s. Key movers included LVMH (-1%) and Porsche (-2.2%), while France’s CAC 40 underperformed, falling 0.7%.

• The U.S. dollar remained firm near recent highs on Tuesday, supported by strong economic data and rising long-term rate expectations ahead of the Federal Reserve's interest rate decision. The euro, under pressure and trading close to yearly lows at $1.0511, has weakened nearly 5% against the dollar this year, with a widening U.S.-German yield gap further favouring the dollar.

• Oil prices edged lower in early Asian trade this morning, pressured by weak Chinese economic data that raised concerns over demand. Traders remained cautious ahead of the U.S. Federal Reserve's policy meeting, which is expected to signal a slower pace of interest rate cuts for 2025.

• German parliament accepted Chancellor Olaf Scholz’s request to withdraw confidence in his government, paving the way for an early election on February 23 following the collapse of his coalition. The election campaign has become contentious, with Scholz and conservative challenger Friedrich Merz exchanging sharp criticisms, while the far-right AfD’s rising influence complicates the political landscape.

Equities on the move

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

• Meta Platforms has updated its Ray-Ban Meta smart glasses with AI video capabilities, real-time language translation, and Shazam integration, available via the v11 software update for Early Access members. The glasses can now translate speech between English, Spanish, French, and Italian, while offering enhanced AI features such as setting reminders and scanning QR codes through voice commands. Meta remains one of our highest convictions in clients’ portfolios.

• Honeywell is considering separating its high-margin aerospace business, backed by activist investor Elliott Investment Management, which has taken a $5 billion stake in the company. The aerospace unit, accounting for 40% of Honeywell’s sales, could be valued at up to $120 billion, with a strategic update expected in January.

• Allianz has withdrawn its offer to acquire a 51% stake in Singapore's Income Insurance, valued at $1.63 billion, after the Singapore government opposed the deal. Despite the setback, Allianz expressed regret and remains respectful of the government's decision, confirming it will not pursue the transaction further.

• Jefferies upgraded Bristol-Myers Squibb to "Buy" with a price target of $70, citing confidence in its product pipeline, including the $10 billion-plus potential of its schizophrenia drug Cobenfy, and stronger sales forecasts for 2024-2025. We initiated a position in the equity back in October and are now sitting on a gain of nearly 10%.

• Loop Capital upgraded Netflix to "Buy" with a price target of $950, citing strong subscriber growth, mid-teens revenue growth, and operating margin expansion. The brokerage highlighted hit programming like Squid Game 2 and major events as key drivers, with long-term potential for over 450 million global subscribers and rising margins by 2030.

• Berenberg has raised Rheinmetall's price target from €655 to €750, maintaining a "Buy" rating, with analyst George McWhirter predicting 24% annual growth until 2027 in a base scenario. He highlighted Rheinmetall's strong position in Europe's armaments cycle, with additional potential if Germany and NATO increase defence budgets.

• Stifel upgraded Cloudflare to Buy from Hold and raised its target price to $136, citing confidence in its technology, earnings prospects, and ability to sustain 25%-30% annual growth. The brokerage highlighted Cloudflare’s extensive network, strong positioning in AI-driven demand, and its role in supporting global internet infrastructure.

Upcoming data and events

Today, the US will release retail sales and industrial production data, while Europe will report on trade balance and the ZEW Economic Sentiment Index, indicating consumer spending and business confidence trends. These releases are crucial for assessing economic health in both regions.

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.