Wall Street posts biggest daily drop in three months

General market commentary

U.S. equity markets fell sharply on Tuesday, with all major indexes posting their biggest one day declines in more than three months. The Nasdaq Composite dropped around 2.4 percent, the S&P 500 fell just over 2 percent, and the Dow Jones Industrial Average lost about 1.8 percent. The sell off was triggered by renewed trade tensions after President Donald Trump announced new tariffs on eight European nations, set to begin in February and potentially rise further in June. Technology shares led the declines, while most sectors ended lower. Investors moved away from risk assets, pushing U.S. Treasury yields higher and weakening the U.S. dollar, while demand for safe havens lifted gold and silver to new record highs.

European markets also closed lower, reflecting concerns about the impact of tariffs on global growth and the possibility of retaliation from the European Union. The Euro Stoxx 50 finished modestly down, and uncertainty was compounded by rising Japanese government bond yields following reports of potential fiscal stimulus in Japan. Despite the market weakness, analysts noted that economic growth and corporate earnings remain relatively strong, suggesting that recent volatility may reflect short term uncertainty rather than a deterioration in fundamentals. Attention now turns to global policy discussions at the World Economic Forum in Davos and to ongoing corporate earnings reports for further direction.

Latest market and economic update

Asian equity markets mostly fell on Wednesday, extending recent losses amid geopolitical uncertainty and concerns over public finances, particularly in Japan. Japanese shares declined as bond yields surged. Elsewhere, markets were subdued, although Chinese shares rose on stimulus hopes and optimism around artificial intelligence and industrial growth.

U.S. equity futures rose slightly overnight after Wall Street’s worst session in months amid geopolitical jitters over President Trump’s Greenland demands. S&P 500, Nasdaq and Dow futures were up about 0.1%. Netflix shares fell nearly 5% after weak guidance, while mixed corporate results and global uncertainty kept equities cautious.

European shares fell to a two-week low amid concerns over Trump’s Greenland tariff threats, with the STOXX 600 down 0.7%, France’s CAC 40 down 0.6%, and Germany’s DAX down 1%. Real estate and luxury sectors were hit, while Renault, TotalEnergies, Wise, and Qiagen saw gains. Meanwhile, Citi downgraded Europe to neutral.

The dollar weakened for a third session amid US–Europe tensions over Trump’s Greenland tariffs, falling to around 98.5. Markets grew concerned over possible European retaliation, including tariffs and selling US assets. The dollar is down against most major currencies, trading at 1.1719 versus the euro, while remaining steady against the yen.

Oil prices slipped in Asian trade as investors turned cautious over rising US EU tensions linked to President Trump’s Greenland push. Brent and WTI fell after prior gains. Markets await the IEA outlook, expected to warn of a supply glut, while a brief Kazakhstan shutdown offered limited support to crude markets globally.

U.S. envoy Steve Witkoff and Russian Kremlin envoy Kirill Dmitriev held a “very positive” two-hour meeting in Davos during the World Economic Forum, joined by Jared Kushner. Both sides said dialogue increased understanding of Russia’s position on Ukraine, reflecting growing recognition of its perspective amid broader diplomatic engagements at the global gathering.

President Donald Trump said tariff revenue could fund a $2,000 payout to Americans without Congress. He claimed rising income from trade duties would also help reduce national debt. Tariff revenues rose sharply in 2025, though critics warn costs may be passed on to consumers, and the Supreme Court is still reviewing their legality.

U.S. Commerce Secretary Howard Lutnick forecast Q1 GDP growth above 5%, arguing high interest rates limit stronger expansion and could allow 6% growth if lower. His view is more optimistic than Treasury and IMF forecasts. Lutnick also addressed Trump’s Greenland tariff threats, warning the EU against retaliation and defending alliance relations.

Germany has lowered its 2026 GDP growth forecast to 1.0% from 1.3%, reflecting heightened international trade uncertainty, with 2027 growth seen at 1.3%. Despite the downgrade, growth remains above 2025’s 0.2%, supported by more working days and increased government investment, while investor sentiment has risen to its highest since August 2021.

Equities on the move

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

Netflix beat revenue and earnings estimates for its holiday quarter, reaching 325 million paid subscribers, but shares fell over 4% after-hours amid its ongoing bidding war for Warner Bros Discovery. The company amended its merger to an all-cash offer, paused share buybacks, and plans to expand live events, advertising, and global operations while growing its content library.

Google DeepMind CEO Demis Hassabis said Chinese AI firms trail leading Western labs by about six months in frontier technology. While startups like Hangzhou-based DeepSeek can catch up, they have yet to innovate beyond the frontier. Constraints, including US semiconductor restrictions, limit their ability to develop and run advanced AI systems.

ServiceNow announced a multi-year collaboration with OpenAI, integrating frontier AI models for summarisation, content generation, and intelligent search. RBC Capital kept an Outperform rating with a $195 target, citing potential higher adoption of Now Assist, enhanced workflows, and support for its bullish outlook on the company’s equity.

Elon Musk said early production of Tesla’s Cybercab robotaxi and Optimus humanoid robot will be very slow, with speed increasing over time. Cybercab volume production is planned for 2026. Musk views autonomous vehicles and robotics as key growth drivers, as Tesla faces declining car sales and rising competition in global markets.

AeroVironment received a mutual stop work order from the U.S. Department of War on its BADGER phased array antenna contract, allowing renegotiation toward a firm-fixed price. RBC Capital kept an Outperform rating, noting short-term revenue headwinds for 2026 but potential margin benefits, with management confident in the program’s long-term prospects.

A US court adviser recommended allowing expert testimony linking Johnson and Johnson talc products to ovarian cancer, advancing more than 67,000 lawsuits towards trial. The judge found plaintiffs’ methods reliable, though some evidence was excluded. Johnson and Johnson denies the claims. Shares dipped slightly, and trials could begin later this year.

Berkshire Hathaway may sell its 27.5% stake in Kraft Heinz, exiting a long-standing investment that underperformed. The conglomerate helped engineer Kraft Heinz’s 2015 merger, which proved disappointing. Shares fell nearly 4% after the filing, following prior writedowns totalling $6.76 billion. Kraft Heinz plans a split later this year under new CEO Steve Cahillane.

Kering announced that Bottega Veneta CEO Bartolomeo Rongone will step down at the end of Q1 2026. The company is already searching for his successor. Kering emphasised that the management team remains committed to maintaining the brand’s positive momentum, as the luxury group undertakes changes to enhance overall performance.

Lululemon has temporarily paused online sales of its Get Low collection in North America, though the range remains available in stores and other markets. The move has raised investor concerns over potential revenue losses from reduced digital availability, highlighting challenges from increasing competition and shifting consumer preferences in the athletic apparel market.

AppLovin faces serious allegations from short-seller CapitalWatch, claiming the company and major shareholder Hao Tang are linked to Southeast Asian money-laundering schemes and Chinese Ponzi fraud. The report accuses management of concealing Chinese operations, facilitating illicit fund flows through advertising platforms, and exploiting user data, while the CEO denies all claims.

Storage and memory equities saw strong gains amid rising data centre spending. Citigroup raised SanDisk’s target to $490, highlighting robust demand. Analysts expect global data centre investment to reach $600 billion in 2026, driven by AI infrastructure and hyperscaler growth, supporting improved pricing, margins, and long-term prospects across the storage sector.

U.S. IT hardware shares fell after Morgan Stanley downgraded the sector to “cautious,” citing slowing corporate demand, rising component costs, and supply bottlenecks. Weak 2026 hardware budgets, potential cutbacks by customers, and economic uncertainty outweigh AI-driven demand, raising risks of downside earnings revisions for companies like HP, Dell, Logitech, and NetApp.

Amazon CEO Andy Jassy said product prices are starting to rise as sellers respond to Trump’s tariffs, following earlier stockpiling to avoid cost surges. While some sellers absorb costs, others pass them on to consumers. Shoppers remain largely resilient, though higher discretionary prices cause some caution. Coca-Cola reported tariffs are manageable due to localised manufacturing.

Morgan Stanley upgraded the European semiconductor sector to Overweight, citing AI-driven capex, improving valuations, and rising diversification inflows. Equipment names like ASML and ASM International benefit from EUV technology and strong foundry and memory investment. Stock selection is key, with execution and transition risks highlighted for 2026.

UBS raised ASML’s price target to €1,400, citing strong momentum in logic, memory, and China ahead of Q4 results. Earnings forecasts for 2026–27 are now 25% above consensus, driven by TSMC capex, a DRAM cycle, and stable Chinese demand. High-NA EUV adoption and AI-related spending support near- to medium-term growth.

Susquehanna upgraded Samsung Electronics to Positive, citing its capacity advantage and ability to scale HBM4 production for AI chips, boosting output and performance. SK Hynix was downgraded, facing capacity constraints and potential HBM market share losses. Samsung’s HBM is expected to contribute 10–15% of DRAM revenue by 2027.

Evercore ISI added Apple to its Tactical Outperform list, citing near-term upside ahead of December-quarter results. Strong iPhone demand, skewed toward premium models, and resilient Services revenue support growth. Limited memory cost pressures and secured NAND supply underpin margins, with Evercore forecasting 17% iPhone and 13% Services revenue growth yoy.

HSBC initiated coverage of SAP at Hold, citing limited upside as strong fundamentals and cloud-driven growth are priced in. Revenue is expected to grow 9.6% CAGR to 2028, driven by cloud migration, but risks include slower adoption, competitive pressure, and margin assumptions. Upside depends on faster cloud uptake and AI initiatives.

Intel received analyst upgrades, with Seaport raising its rating to Buy and HSBC to Hold, citing a PC recovery and strong server CPU demand driven by agentic AI. Upcoming Panther Lake processors and the 18A manufacturing process boost competitiveness, while increased external engagement and advanced packaging opportunities support revenue growth and market relevance.

JP Morgan raised 2027 price targets for UK banks, including Barclays (570p), NatWest (750p), and Lloyds (117p), citing growth potential and strong forecasts. Barclays leads with a Positive Catalyst Watch rating. Robust loan growth, cost discipline, and expected ROTE improvements underpin optimism, supported by rising mortgages, consumer credit, corporate loans, and deposits.

Goldman Sachs upgraded On Holding AG to Buy, citing a sharp share de-rating as an attractive entry into the premium sportswear brand. Strong Q4 demand, 102% Tmall sales growth, global running trends, high-income consumer focus, and margin upside support revenue, EBITDA, and EPS growth above 20% CAGR through 2028.

Simply Goods shares rose after Mizuho reaffirmed an Outperform rating with a $30 target, citing Joe Scalzo’s return as a potential boost for the Atkins brand. His focus on innovation and product quality, alongside pilot study support and loyal consumers, could drive growth across Atkins, Quest, and OWYN amid competitive protein snack and beverage markets.

UBS forecasts the EUR/USD will gradually rise to 1.20 in coming months before stabilising. The pair has traded between 1.15 and 1.19, with euro strength expected to outpace the dollar. Geopolitical events and Federal Reserve policy could lift it higher, while stronger U.S. growth poses a downside risk below 1.15.

Upcoming data and events

Key economic events for Wednesday include U.S. President Trump’s scheduled speech at Davos and the release of pending home sales data. Major company earnings reports are due from Johnson & Johnson, Charles Schwab, ProLogis, Travelers, Kinder Morgan, Truist Financial, and Experian.

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