Selloff returns stocks as traders lose their nerve: Markets Wrap

On January 3, 2025By Littum

(Bloomberg) — An early rally in stocks collapsed, and major U.S. benchmarks appeared to extend a selloff that shaved more than a trillion dollars from stock prices over the past four sessions. Tesla Inc.’s post-Christmas drop widened to nearly 20% after its annual car sales fell.

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Treasury yields stabilized. Yields on the 10-year benchmark were nearly 20 basis points above levels before Jerome Powell’s hawkish turn at a December 18 Federal Reserve meeting. Big moves have spread across asset classes after Powell’s board expressed waning enthusiasm for rate cuts. The Cboe volatility index rose for the fourth time in five days.

Tesla fell after the electronic vehicle marker’s fourth-quarter deliveries missed estimates and annual sales fell for the first time in over a decade. The stock was headed for its worst five-day decline in more than two years.

This year will be a “show-me year” for corporate earnings, according to Lisa Shalett of Morgan Stanley Wealth Management. As for the bleak end of 2024, it’s “too early to call it a bad omen,” she told Bloomberg Television.

Treasuries erased an early advance after a reading of weekly jobless claims fell to an eight-month low. A Bloomberg gauge of the dollar’s strength was trading at a more than two-year high.

Goldman Sachs economists led by Jan Hatzius noted that “seasonal adjustment challenges could make jobless claims readings particularly volatile around the holiday season.”

U.S. stocks had struggled to snap a losing streak that took some of the shine off the S&P 500’s best two-year run dating back to the late 1990s. The index is up more than 50% since the start of 2023, driven by gains in tech megacaps amid enthusiasm over the boost to profits from artificial intelligence.

Meanwhile, an attack on New Orleans revelers has put US homeland security back in the spotlight less than a month before Donald Trump is sworn in as president. The Federal Bureau of Investigation is investigating this incident as well as the fatal explosion of a Tesla Cybertruck outside Trump’s Las Vegas hotel.

An overnight shooting at a New York City nightclub only added to the anxiety, while authorities said it was not related to terrorism.

The CBOE’s gauge of Wall Street stock sentiment, the VIX, touched 19. Readings above 20 indicate growing concern about near-term volatility.

In the coming months, growth prospects in Europe and China, the Federal Reserve’s policy path and Trump’s agenda will be among the most pressing items on traders’ radars.

European energy stocks outperformed after a sharp rise in natural gas prices as the region braced for freezing winter temperatures without Russian supplies delivered via Ukraine. A transit contract between the two warring nations expired on New Year’s Day, with no alternative in place.

The euro fell to its weakest against the dollar in more than two years, reflecting concerns about European growth, US trade tariffs and monetary policy divergence with the US. Many strategists predict a decline to parity with the dollar or even lower this year.

In Asia, sentiment was subdued, with Chinese stocks the worst performers as data pointed to a slowing economy and traders looked ahead to potentially higher tariffs. MSCI Inc.’s benchmark for Asian shares fell for the third day in the past four. Financial markets in Japan remained closed.

Elsewhere in commodities, oil rose after an industry report signaled that US crude inventories continued to shrink. A report from the American Petroleum Institute showed inventories fell by 1.4 million barrels last week, which would be a sixth straight decline. Gold rose. Bitcoin extended its rally for a third day.

Key events this week:

Some of the most important movements in markets:

The S&P 500 fell 0.7% at 14:01 New York time
The Nasdaq 100 fell 0.8 per cent.
The Dow Jones Industrial Average fell 0.7 percent.
The MSCI World Index fell 0.5 per cent.
Chicago Board Options Exchange Volatility Index rose 9.6%

Currencies

The Bloomberg Dollar Spot index rose 0.4 percent.
The euro fell 1% to $1.0256
The British pound fell 1.2% to $1.2368
The Japanese yen fell 0.2% to 157.50 per dollar

Cryptocurrencies

Bitcoin rose 2.5% to $97,181.78
Ether rose 2.9% to $3,460.55

Bonds

The yield on 10-year government bonds was little changed at 4.56%
Germany’s 10-year yield rose one basis point to 2.38%
UK 10-year yields rose three basis points to 4.59%

Raw materials

West Texas Intermediate crude rose 2% to $73.18 a barrel
Spot gold rose 1.2% to $2,655.29 per ounces

This story was produced with assistance from Bloomberg Automation.

–With assistance from Richard Henderson, Chiranjivi Chakraborty, Cecile Gutscher and John Viljoen.