Stock Traders Look Past AI Jitters as Bonds Climb: Markets Wrap
2025.02.05
(Bloomberg) -- Stocks bounced back as gains in most major industries overshadowed underwhelming earnings from some tech heavyweighs. Bonds climbed after a weak reading on US services.
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Almost 350 companies in the S&P 500 advanced, with the benchmark wiping out earlier losses. Nvidia Corp. led gains in chipmakers. But a gauge of the “Magnificent Seven” megacaps sank 1.7% as Alphabet Inc.’s results drove Google’s parent toward its worst slide in over a year. Advanced Micro Devices Inc. tumbled 8% on a disappointing outlook. Treasury yields reached 2025 lows as data showed new orders placed with US service providers hit the weakest since June.
Wall Street has been whipsawed by uneven economic data, trade tensions and questions on whether the billions of dollars spent on artificial intelligence will start to pay off. To Mark Hackett at Nationwide, the flurry of market-moving headlines in the first few weeks of 2025 serves as a stark reminder to investors that volatility can emerge unexpectedly.
“The ultimate performance of equity markets by year’s end is far less significant than how investors navigate the volatility encountered throughout the year,” he said.
Last week, DeepSeek’s emergence as an AI threat wiped half a trillion dollars of value off Nvidia. Last night, Alphabet’s results sparked questions about its capital expenditures from the cohort of big techs that has powered the bull market. While the “Magnificent Seven” have made up more than half of the S&P 500’s gains over the past two years, their profit growth is decelerating.
“Within the US stock market, we like large caps — particularly S&P 493 companies — which should expand profit margins as they adopt productivity-boosting technologies,” said Ed Yardeni, founder of his namesake research firm. “If volatile macro news provides opportunities to buy underappreciated value stocks on dips, be sure those dips aren’t traps.”
The S&P 500 rose 0.1%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average gained 0.3%. UnitedHealth Group Inc. pared losses to about 1.5% after saying it contacted the US Securities and Exchange Commission with concerns about investor Bill Ackman’s since-deleted X post suggesting the company overstated profits. Uber Technologies Inc. slid 7% on a weak gross bookings guidance.
The yield on 10-year Treasuries declined 10 basis points to 4.41%. The Bloomberg Dollar Spot Index fell 0.3%.
The biggest companies — often called the Magnificent Seven — have been increasing their business outlays on things like property and equipment, spending 40% more on the category in 2024 than the year before, according to strategists at Societe Generale SA. The rest of the S&P 500 grew capital expenses by just 3.5% last year, the strategists added.
“Over the past year, investors expressed concern about the monetization of AI investment,” said Mike O’Rourke at JonesTrading. “The investment is getting significantly larger, and the field of competition will also grow more rapidly with lower development costs.”
That amount of spending by big tech came under even heavier scrutiny after Chinese AI startup DeepSeek took Silicon Valley by surprise last week when it said it had created a powerful AI model at a fraction of the cost of US rivals.
“The release of a seemingly more efficient AI model by Chinese startup DeepSeek has renewed questions about AI capex,” said BlackRock Investment Institute strategists including Jean Boivin and Wei Li. “We are in the AI buildout, with total capital investment by the “magnificent seven” mostly mega cap tech stocks on par with government R&D.”
The strategists say they see a “broadening set of AI beneficiaries” and stay overweight US stocks.
Corporate Highlights:
Chipotle Mexican Grill Inc.’s sales rose less than expected, highlighting the high bar the company set by defying an industrywide traffic slowdown in recent years.
Walt Disney Co. reported fiscal first-quarter results that topped analysts’ estimates, fueled by the blockbuster film Moana 2 and higher income from its streaming services.
Johnson Controls International Plc jumped following a boost in its profit forecast and the hiring of a new chief executive officer.
Electronic Arts Inc. reported third-quarter earnings and provided further context on the underperformance of EA Sports FC, which had been a source of concern for investors.
Harley-Davidson Inc. reported revenue for the fourth quarter that missed the average analyst estimate.
Match Group Inc. named Zillow Group Inc. co-founder Spencer Rascoff as its new chief executive officer, replacing Bernard Kim who has struggled to end a persistent decline in subscribers to the company’s flagship dating app Tinder.
Snap Inc. issued a disappointing earnings outlook, taking away from stronger-than-expected revenue gains in the last quarter.
Key events this week:
Eurozone retail sales, Thursday
UK rate decision, Thursday
US initial jobless claims, Thursday
Fed’s Christopher Waller, Lorie Logan speak, Thursday
Amazon earnings, Thursday
US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday
