Stocks wavered today as markets struggled to find direction following the latest GDP data and a flurry of heavyweight tech earnings. The S&P 500 inched up just 0.1% while the tech-heavy Nasdaq Composite slipped 0.3%, weighed down by disappointing results from several major players.
The early morning optimism quickly faded as reality set in. Despite 416 stocks in the S&P 500 trading higher, massive declines from market leaders cast a shadow over the broader indices. UPS cratered 18% after announcing plans to reduce volume with its largest customer Amazon. ServiceNow and Comcast both plunged 13%, while Microsoft dropped 6.2% following disappointing Azure growth numbers.
Even mighty Nvidia wasn’t immune to the selling pressure, falling 4.3% as traders reassessed sky-high valuations across the AI sector. Amazon shares declined 1.8%, though Meta managed to buck the trend with a solid gain after stronger-than-expected advertising revenue.
The stark divergence between market breadth and index performance tells a concerning story. While the Invesco S&P 500 Equal Weight ETF climbed 1%, suggesting strength in the average stock, the massive tech companies that have driven this rally higher are starting to show cracks.
And this could be just the beginning of the trouble. Fourth-quarter GDP growth came in at 2.3%, below economists’ expectations of 2.4% and well under the previous quarter’s 3.1% pace. The slowdown raises questions about whether the economy can maintain its momentum as the effects of past stimulus fade.
Meanwhile, the labor market continues to send mixed signals. Weekly jobless claims fell to 207,000 from 223,000, indicating persistent strength in employment. But with the Fed determined to keep rates higher for longer, many analysts worry that something will eventually have to give.
The bond market is certainly showing signs of stress. Treasury yields retreated today, with the 10-year rate dropping to 4.52% and the 2-year yield falling to 4.22%. But the yield curve remains deeply inverted – a historical harbinger of recession.
The Fed’s latest meeting provided little comfort to investors hoping for quick relief. Rate cut expectations for March have plunged to just 18% probability, down from 26.5% a week ago according to CME FedWatch data.
The real fireworks could come tomorrow when the December PCE inflation report hits. If prices run hotter than expected, it could force the Fed to maintain its hawkish stance even longer, potentially setting up a showdown between monetary policy and market expectations.
All eyes now turn to Apple’s earnings after the close. As the world’s largest company by market cap, its results and guidance could make or break the current rally. Intel and Visa will also report, providing crucial insight into both consumer and business spending trends.
The technical picture isn’t offering much encouragement either. The S&P 500’s struggles to hold gains above its 10-day moving average suggest mounting selling pressure. And with earnings season in full swing, more disappointments could quickly turn the tide of sentiment.
Market breadth may be solid for now, but history shows that can change in an instant when big tech starts to falter. The Magnificent Seven stocks have masked weakness in many areas of the market – a trend that becomes dangerous if their leadership falters.
The European Central Bank’s unexpected rate cut today highlights the diverging paths of global central banks. While Europe moves toward easing, the Fed remains focused on its inflation fight. This policy disconnect could spark volatility in currency markets and create headwinds for U.S. multinationals.
Smart traders are watching key support levels closely while maintaining tactical positioning. With volatility still relatively subdued, protective options strategies remain attractively priced. Building some defensive positions now could prove prudent if the market’s foundation continues to crack.
Because once sentiment shifts, things can unravel quickly. The massive gains since the 2022 lows have created complacency among many investors. But markets have a way of humbling those who forget that trees don’t grow to the sky.
For now, the path of least resistance may still be higher. But prudent investors should stay nimble and avoid becoming overly committed to any single position or narrative. The next few weeks of earnings and economic data could determine whether this rally has staying power or is running on borrowed time.
