US indices post back-to-back losses on bank earnings

General market commentary

US equities ended lower on Wednesday as heightened geopolitical tensions and mixed corporate and economic news weighed on investor sentiment. Technology and consumer discretionary shares led the decline, leaving the Nasdaq notably weaker than the S&P 500, while the Dow was broadly flat. Communication services was among the poorest performing sectors, whereas energy shares outperformed despite a late pullback in oil prices. Volatility picked up modestly, with the VIX rising towards the upper end of its recent range, while safe haven assets such as gold and US Treasuries attracted demand.

Earnings from major banks set a cautious tone, with Wells Fargo and Citigroup shares falling after disappointing elements in their results, despite otherwise solid underlying activity. Technology shares were also pressured by reports of further restrictions on US firms operating in China, weighing on names such as Nvidia and Broadcom. On the macro front, wholesale inflation data came in broadly in line with expectations, though revised forecasts pointed to slightly firmer core inflation ahead, reinforcing expectations that the Federal Reserve is likely to wait until mid year before cutting interest rates. Geopolitical concerns, particularly around Iran, continued to support precious metals, with gold and silver hitting fresh highs during the session.

Latest market and economic update

Asian equities mostly declined on Thursday, led by a pullback in Japan’s Nikkei from record highs as technology shares weakened. Markets were cautious ahead of TSMC earnings and amid global geopolitical concerns. South Korean shares edged higher after rates were left unchanged, while Chinese markets extended recent losses.

U.S. equity index futures dipped modestly overnight after Wall Street’s two-day losing streak, with tech and bank shares retreating. Afterhours, S&P 500 futures fell 0.1% to 6,957.25, Nasdaq 100 futures dropped nearly 0.2% to 25,590.50, and Dow futures slid 0.15% to 49,282, as investors weighed TSMC’s upcoming earnings and geopolitical concerns over Venezuela and Iran.

European shares traded mixed on Wednesday as investors focused on Greenland talks. Germany’s DAX fell 0.4% and France’s CAC 40 declined 0.2%, while Italy’s FTSE MIB rose 0.27%. In corporate news, BP flagged $4–5bn in impairments related to its energy transition units and weaker oil trading, refocusing on its core oil and gas business.

The US dollar stabilised above 99 on Thursday, supported by mixed economic data and Fed policy expectations. Producer inflation rose slightly while retail sales exceeded forecasts. Against the euro, the dollar traded around 1.1635, as investors balanced steady rate expectations with geopolitical developments and President Trump’s comments on Fed Chair Powell and Iran.

Oil prices fell sharply in Asian trading this morning, ending a five-day rally as U.S. President Donald Trump’s comments eased fears of an immediate conflict with Iran, reducing the risk premium on crude. Brent dropped around 2.8% and WTI about 3%, while rising U.S. inventories and hopes of increased Venezuelan exports added further downward pressure.

President Donald Trump said he has no plans to dismiss Federal Reserve Chair Jerome Powell, despite a Justice Department investigation, though he said it was too early to decide his final course of action. He indicated he may soon name a successor, dismissing concerns over Federal Reserve independence and criticism from lawmakers.

Minneapolis Fed President Neel Kashkari expects steady U.S. growth and falling inflation, calling the economy resilient but “K-shaped.” He sees housing easing inflation, questions current policy tightness, and rules out quantitative easing. Tariffs’ impact is limited, unemployment is improving, AI and crypto pose minimal disruption, while central bank independence remains crucial.

Equities on the move

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

OpenAI will acquire up to 750 megawatts of computing power from Cerebras over three years, in a deal worth over $10 billion, to accelerate its AI models and ChatGPT responses. The partnership, involving Cerebras-built data centres, highlights soaring demand for AI inference, while both companies prepare for potential IPOs amid concerns of an AI investment bubble.

President Donald Trump imposed a 25% tariff on certain advanced computing chips, including Nvidia H200 and AMD MI325X, citing national security concerns. Exemptions apply to chips supporting the U.S. technology supply chain or domestic manufacturing, with the White House signalling potential broader tariffs on semiconductors to boost local production.

Alibaba has upgraded its Qwen AI app, integrating shopping, payments, travel, and mapping services to allow users to complete tasks within a single interface. The update shifts the app from conversational to “agentic” AI, enabling it to autonomously carry out multi-step actions, such as ordering food, making payments, and booking travel.

Citigroup beat Q4 profit estimates, driven by a rebound in M&A and corporate advisory fees, with investment banking revenue up 35% to $1.29bn. Total revenue rose to $19.87bn. The bank advanced regulatory compliance, sold its Russian unit, and focused on prime brokerage and wealth management, while trimming headcount to boost efficiency under CEO Jane Fraser.

Wells Fargo missed Q4 profit estimates, reporting $5.36bn net income and $612m in severance costs as CEO Charlie Scharf streamlines operations. Net interest income rose 4% but fell short of expectations. The bank plans to expand credit card offerings, invest in AI, and continue workforce reductions, following the lifting of its regulatory asset cap.

Bank of America beat Q4 profit estimates, reporting $7.6bn net income and $15.75bn net interest income, aided by volatile markets and higher trading revenue. Loans rose 8% to $1.17tn, while wealth management revenue grew 10%. The bank forecasts continued NII and loan growth in 2026, reflecting strong consumer and commercial demand.

Oracle shares fell 5% after bondholders filed a proposed class action, alleging the company and co-founder Larry Ellison failed to disclose the need for significant debt to fund AI infrastructure. Plaintiffs claim they suffered losses due to a lack of transparency regarding Oracle’s AI investment plans and associated financing, highlighting investor concerns over disclosure practices.

A U.S. judge dismissed a shareholder lawsuit against CrowdStrike over its July 2024 software outage affecting 8 million Windows PCs, ruling plaintiffs failed to prove false statements or intent to defraud. The outage caused a 32% share drop and $25bn market loss. Delta and passengers’ lawsuits continue separately.

AI firms Anthropic and OpenAI, alongside SpaceX, are preparing for potential IPOs, potentially creating a “supercycle” of tech listings in 2026. Valued at $350bn, $500bn, and $800bn respectively, these offerings could become some of the largest since Saudi Aramco, marking a historic moment for Silicon Valley and the AI sector.

Bernstein initiated KLA with an Outperform rating and $1,700 target, citing its 57% process control market share and leadership in semiconductor equipment. Process control spending is set to outpace broader wafer fabrication. KLA’s technical barriers, service growth, Intel foundry demand, and disciplined capital allocation support mid-to-high double-digit EPS growth.

Evercore ISI initiated AppLovin with an Outperform rating and $835 target, citing its dominance in mobile gaming ads and growth into e-commerce. Revenue and EBITDA are expected to rise over 30% annually through 2028, supported by AI-driven monetisation, strong operating leverage, and high-margin growth, with gaming catalysts and e-commerce expansion key drivers.

Bernstein gave SanDisk a $580 price target, citing tight NAND supply and rising prices as key drivers. AI-driven data growth, richer content, and longer retention are boosting memory demand, creating a storage supercycle. SanDisk is seen as the top short-term beneficiary, while OEMs face margin pressure from higher memory costs.

HSBC upgraded EssilorLuxottica to Buy, raising its target to €340, citing AI-powered smart glasses as a major growth driver. The company, with 70% current market share, is set to benefit from Meta-led adoption and a rising total addressable market, with smart glasses volumes forecast to reach 57 million units by 2040.

Upcoming data and events

Today’s key economic data covers UK and German GDP, US import/export prices, jobless claims, Fed manufacturing indices, Treasury bill auctions, mortgage rates, and gas stocks. Corporate earnings focus on TSMC, Morgan Stanley, Goldman Sachs, and BlackRock, highlighting developments in semiconductors and finance sectors.

This information is provided solely for educational and informational purposes and should not be construed as investment advice, advice on specific investments or investment decisions, tax advice, legal advice, or any other form of professional or regulatory advice. The information does not take into account your personal circumstances and is provided to you on the express understanding that it does not constitute advice and should not be relied upon in making any investment decision. Investing in financial instruments involves risk. You should conduct your own research before making any investment decisions and seek the assistance of a licensed financial advisor if you are unsure. No person should act on any opinion or information contained in this document without first obtaining appropriate professional advice. Calamatta Cuschieri Investment Services Limited does not accept liability for any actions, proceedings, costs, demands, expenses, damages, or losses suffered as a result of reliance on the information herein.