US Stocks Snap Five-Day Drop As Dollar Retreats: Markets Wrap

Investors have finally been induced to buy the dip in US stocks. After a five-day drop that shaved more than a trillion dollars off share prices, Wall Street put the longest equities losing streak since April behind it.

The Nasdaq 100 clawed back losses on Friday, climbing 1.7% while the S&P 500 rose 1.3%. The gains managed to put a dent in the week's selloff after an end of December rout had stretched into the first trading day of the year. Traders shrugged off warnings about slowing earnings growth for the tech stocks dubbed the Magnificent Seven and continued to snap up shares of AI juggernaut Nvidia Corp.  

“For as long as retail investors continue to pour money into the AI theme, the AI led boom in stock markets is likely to continue,” JPMorgan strategists led by Nikolaos Panigirtzoglou told clients. To track the mood of day traders they advised watching flows into Invesco's Nasdaq-tracking exchange-traded fund (QQQ) and a fund from GraniteShares, which provides twice the daily returns of Nvidia (NVDL).

Stocks reached session highs in the afternoon as the reelection of Mike Johnson to House speaker suggested Republicans will be able to coalesce behind the president-elect's business-friendly deregulatory agenda. Bond yields pushed higher with the benchmark 10-year touching 4.6% after Richmond Fed President Tom Barkin suggested his preference was to keep rates restrictive for longer. 

Earlier data showed US manufacturing rose at a modest pace in the final month of 2024. The Institute for Supply Management's gauge hit 49.3, topping estimates, but remained below 50, a level that indicates economic expansion. New orders rose to the highest since the start of last year. Treasuries dipped after the report while stocks held onto gains. 

Investors sieving through data to find signs the world's largest economy was still going strong had to weigh that against the prospect of slower and shallower interest-rate cuts after Federal Reserve Chair Jerome Powell's hawkish pivot in December.

Vital Knowledge's Adam Crisafulli said the ISM readout was incrementally positive but “but it will reinforce worries about hawkish policy and elevated yields.”

Such concerns saw volatility reemerge this week as the S&P 500 notched intraday gains in the previous two sessions, only to close lower. Lighter holiday trading amplified the moves. 

Second Term

Investors are also contemplating Donald Trump's return to the White House in 17 days.

“We really need to see more of that clarity on Jan. 20 for markets to have greater conviction,” Laura Cooper, global investment strategist at Nuveen, said on Bloomberg Television. “US exceptionalism will continue to be the dominant theme at least in the first half of the year, regardless of what some of those policies that come through are.”

Louis Navellier sees “growing concern regarding the plethora of changes being proposed by the incoming Trump 2.0 administration.” 

“The sabre rattling about tariffs brings inflation risks. The deportation of many thousands of illegal immigrants may cause labor disruptions,” the chief investment officer of Navellier & Associates wrote in a note.

The dollar drifted lower after setting a two-year high Thursday.

Among individual stock movers, Freddie Mac and Fannie Mae traded near eight-year highs on plans to release the mortgage giants from government supervision. United States Steel Corp. fell 6.5% after President Joe Biden blocked Nippon Steel Corp.'s proposed purchase of the company. 

Biden's decision to block the $14.1 billion sale of US Steel to Nippon Steel killed a high-profile deal that sparked a political firestorm and tensions between the US and Japan. Biden announced his formal decision on Friday after the case was referred to him by a US security review panel, ahead of a deadline early next week. 

“U.S. Steel will remain a proud American company — one that's American-owned, American-operated, by American union steelworkers — the best in the world,” the president said in a statement.   

Shares of drinks makers declined after the US Surgeon General said labels on alcohol products like beer and wine should carry warnings of their links to cancer.  Constellation Brands Inc. slumped as much as 2.3% and Molson Coors Beverage Co. lost nearly 5%. In Brussels, Anheuser-Busch InBev NV, the maker of Budweiser beer, fell 2.8%.

Chinese stocks extended the worst start to the year since 2016, reflecting worries about the growth outlook. The yuan fell to breach the psychological milestone of 7.3 per dollar for the first time since late 2023. The nation's 10-year government bond yield slipped below 1.6% for the first time ever. 

“There's been many false dawns in China in recent months and it looks as though it's unraveling again,” said Kenneth Broux, a strategist at Societe Generale. “We've seen three big days of selling which is not really conducive to sentiment.”

In commodities, WTI crude extended a climb into the fifth day reaching $74 a barrel. Gold lodged its best weekly gain since November.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.3% as of 4:05 p.m. New York time

• The Nasdaq 100 rose 1.7%

• The Dow Jones Industrial Average rose 0.8%

• The MSCI World Index rose 1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.4% to $1.0308

• The British pound rose 0.4% to $1.2429

• The Japanese yen rose 0.1% to 157.28 per dollar

Cryptocurrencies

• Bitcoin rose 1.2% to $98,261.76

• Ether rose 4.4% to $3,602.51

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.60%

• Germany's 10-year yield advanced five basis points to 2.43%

• Britain's 10-year yield was little changed at 4.59%

Commodities

• West Texas Intermediate crude rose 1.2% to $74 a barrel

• Spot gold fell 0.7% to $2,638.43 an ounce

This story was produced with the assistance of Bloomberg Automation.

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