Key Takeaways
- U.S. stock markets showed mixed performance today, influenced by AI sector optimism and significant M&A activity.
- Economic data presented a mixed picture, with a weaker ISM manufacturing index offset by a supportive S&P US manufacturing PMI revision.
- Interest rate outlook remains uncertain, with dovish comments from Fed Governor Miran contrasting with cautious remarks from Chicago Fed President Goolsbee.
- Key stock movers included Amazon, bolstered by a major AI cloud deal, and Kenvue, surging on acquisition news from Kimberly-Clark.
- The ongoing US government shutdown continues to be a drag on market sentiment and the broader economy.
US Market Performance and AI Influence
The S&P 500 Index ( $SPX) saw a slight gain of +0.07%, while the Nasdaq 100 Index ( $IUXX) advanced by +0.33%. Conversely, the Dow Jones Industrials Index ( $DOWI) experienced a decline of -0.43%. December E-mini S&P futures (<a rel=nofollow noopener noreferrer target=_blank href=https://www.barchart.com/futures/quotes/ES0/overview>ESZ25) were down -0.05%, while December E-mini Nasdaq futures (<a rel=nofollow noopener noreferrer target=_blank href=https://www.barchart.com/futures/quotes/NQ0/overview>NQZ25) showed a positive trend, up +0.29%.
💡 The market sentiment was notably supported by continued optimism surrounding the artificial intelligence sector, further fueled by OpenAI’s significant $38 billion investment in AI computing power from Amazon.
In the realm of mergers and acquisitions, Kimberly-Clark announced its intention to acquire Kenvue, the maker of Tylenol, in a deal valued at $40 billion, comprising stock and cash. Additionally, Eaton has agreed to acquire Boyd’s thermal business for $9.5 billion, a move that aligns with the growing data center industry.
Economic Data Releases and Fed Commentary
Stocks faced headwinds from a +3.1 basis point increase in the 10-year Treasury note yield.
Fed Governor Stephen Miran offered a dovish perspective, stating that current Federal Reserve policy is too restrictive and that the neutral rate is significantly lower than the prevailing policy level. He expressed less concern about inflation compared to some other committee members, suggesting no immediate reason to maintain restrictive policies.
In contrast, Chicago Fed President Austan Goolsbee adopted a slightly more hawkish tone. He conveyed greater concern about inflation than the job market and remains undecided on policy for the upcoming December FOMC meeting. While acknowledging that interest rates could be lowered substantially, he emphasized the importance of aligning rate reductions with declining inflation.
📊 The market is currently pricing in a 66% probability of a -25 basis point rate cut at the next FOMC meeting scheduled for December 9-10.
The October ISM manufacturing index registered a decline, falling by -0.4 points to 48.7, which was weaker than the expected increase to 49.5. This marks the seventh consecutive month the index has remained below the 50.0 expansion-contraction threshold. On a more positive note, the October ISM prices paid index decreased by -3.9 points to 58.0, falling short of analyst expectations.
✅ A supportive factor for the stock market was the final reading of the S&P US manufacturing Purchasing Managers’ Index (PMI) for October, which was revised slightly upward by +0.3 points to 52.5, exceeding market forecasts of 52.2.
Supreme Court Tariff Case and Corporate Earnings
Markets are keenly awaiting oral arguments at the Supreme Court concerning the legality of President Trump’s reciprocal tariffs. These arguments, scheduled for Wednesday, may offer indications of the Court’s potential ruling. A decision is anticipated by the end of the year or early 2026. Lower courts have previously deemed these tariffs illegal, citing a questionable claim of emergency authority under the 1977 International Emergency Economic Powers Act. A Supreme Court ruling against the tariffs could necessitate refunds of over $80 billion in collected duties and potentially limit the administration’s ability to impose tariffs to specific, legally sound sections of trade law.
⚡ The Q3 corporate earnings season is progressing robustly, with 136 S&P 500 companies scheduled to report this week. According to Bloomberg Intelligence, 80% of companies that have reported thus far have surpassed expectations, indicating the strongest quarter since 2021. However, Q3 profits are projected to rise by 7.2% year-over-year, the smallest increase in two years, and Q3 sales growth is anticipated to slow to 5.9% year-over-year from 6.4% in Q2.
📌 The continuation of the US government shutdown into its sixth week is impacting market sentiment and the economy, leading to delays in the release of crucial government reports.
International Markets and Interest Rates
Overseas stock markets are trading higher today. The Euro Stoxx 50 is up by +0.30%. In Asia, China’s Shanghai Composite closed higher by +0.55% on Monday, while Japan’s Nikkei Stock 225 recorded a significant gain of +2.12%.
Interest Rates Outlook
December 10-year T-notes (ZNZ5) are trading higher today, up by +0.5 ticks. The 10-year T-note yield has increased by +3.1 basis points to 4.109%. Support for T-note prices is stemming from the weaker-than-expected US ISM manufacturing report. However, upward pressure on T-note prices is being exerted by a +0.2 basis point rise in the 10-year breakeven inflation expectations rate to 2.190%.
Bearish sentiment from the previous week continues to influence T-note prices, following Fed Chair Powell’s caution against assuming another Fed rate cut at the upcoming December 9-10 meeting. Several other Fed officials also expressed reservations about further rate reductions late last week. Nevertheless, Fed Governor Stephen Miran’s recent dovish comments provide some counterbalancing influence.
📍 Underlying support for T-note prices comes from the ongoing US government shutdown, which could potentially lead to increased job losses, reduced consumer spending, and a weakened US economy, possibly creating room for the Fed to continue cutting interest rates.
European government bond yields are also higher. The 10-year German bund yield is up by 2.8 basis points to 2.661%, and the 10-year UK gilt yield has increased by +3.0 basis points to 4.439%.
Swaps are currently indicating a 6% probability of a -25 basis point rate cut by the European Central Bank (ECB) at its next policy meeting on December 18.
Key US Stock Movers
The Magnificent Seven stocks are largely trading higher today, with the exception of Apple (AAPL), which is down over 1%.
Amazon (AMZN’s) stock price surged by more than +4% following the announcement of a substantial $38 billion deal with OpenAI for Amazon Web Services (AWS) cloud AI capacity.
Nvidia (NVDA) experienced a gain exceeding +2%. This rise followed Loop Capital Markets’ upward revision of its price target for Nvidia, implying a market capitalization target exceeding $8.5 billion.
Alphabet (GOOG) is trading slightly higher after Bloomberg reported the company’s plans to raise $15 billion through a dollar bond sale across up to eight tranches with maturities ranging from 3 to 50 years.
The Dow Jones Industrials Average is being weighed down by negative market breadth, with 22 declining stocks versus only 8 advancing. Prominent decliners within the Dow, with losses exceeding -2%, included UnitedHealth Group (UNH), NIKE (NKE), Merck (MRK), and Chevron (CVX).
Crypto stocks are trading lower today, reflecting a -2.8% sell-off in Bitcoin (^BTCUSD). Coinbase (COIN) is down -4%, MicroStrategy (MSTR) is down -2%, and Mara Holdings (MARA) has fallen more than -2%. Riot Platforms (RIOT), however, is up more than +2%.
IREN LTD (IREN) has seen gains of over +9% following news that Microsoft (MSFT) has entered into an agreement to purchase nearly $10 billion worth of AI cloud capacity from the data-center company.
Kenvue (KVUE) is up by more than +16% after Kimberly-Clark (KMB) agreed to acquire the Tylenol maker and consumer health firm for approximately $50 billion in stock and cash. Kimberly-Clark’s stock has fallen sharply by more than -12% on the announcement.
Cisco Systems (CSCO) is trading up more than +1% following an upgrade from UBS, which raised its rating to buy from neutral.
Eaton (ETN) is trading slightly higher after agreeing to acquire Boyd Corp’s thermal business from Goldman Sachs for $9.5 billion.
Final Thoughts
US stock markets experienced a day of mixed performance, driven by ongoing AI sector momentum and significant M&A activity, while economic data provided a fragmented view of the economy.
The Federal Reserve’s policy outlook remains a key focus, with contrasting commentary from Fed officials adding to market uncertainty regarding future interest rate movements.
Key individual stock performances were highlighted by major tech company deals and significant corporate acquisitions, underscoring the dynamic nature of the current market environment.