Stocks Dip as Tech Retreats to Start Short Week

By Joe Mazzola

Stocks have behaved well for Santa so far, though several days remain in what's traditionally the Christmas rally period. Major indexes stumbled early today on tech weakness and rising geopolitical tension that sent volatility up. Trading is truncated again this week due to Thursday's New Year's Day closure, meaning volume could remain thin, and trends might be tough to track.

For those sticking around, coming days offer a handful of economic clues. The Federal Reserve's minutes, reportedly scheduled for tomorrow afternoon, might provide clues into the outlook for interest rates among divided members of the central bank. The minutes could also shed light on economic projections policy makers delivered earlier this month, which were notably rosy in terms of inflation, growth, and unemployment. Two Treasury auctions occur today, and tomorrow brings a reading on U.S. home prices. Wednesday is a normal trading day ahead of the holiday, closing at the usual time.

Major indexes fell Friday but finished just off intraday record highs. The S&P 500 index rose 1.4% last week, its fourth weekly advance in the last five, and is now up nearly 18% in 2025. The trend of decliners outpacing advancers continued Friday—potentially something to track for signs of a sentiment shift. That said, the S&P 500 Relative Strength Index (RSI) topped 61 by late Friday, well above mid-month lows that fell beneath 50. A reading of 61 is considered relatively strong but not overbought, and 61% of S&P 500 stocks now trade above their 50-day moving averages, a signal of improved fortunes for many stocks, not just the biggest whales.

Three things to watch

1. Geopolitical rumblings to start week: Tensions in the Middle East have crude oil (/CL) trading higher early Monday, supporting major oil company shares. This came after Iran's president said over the weekend that his country is in "full-scale war" with the U.S., Europe, and Israel, according to media reports. President Trump and Israeli President Netanyahu are meeting today, and Netanyahu has warned of new advancements in Iran's ballistic missile program, CNN reported. At the same time, there's a new flare in relations between the U.S. and China as Beijing launched what the Wall Street Journal called "major military exercises" in the waters and airspace around Taiwan Monday. This follows the Trump administration's approval of a large package of U.S. arms to Taiwan. While it may be holiday season, international conflict rarely takes a week off and investors might want to monitor these developments—along with the Ukraine situation—for possible related tremors in the stock and bond markets. Volatility in U.S. stocks ticked up this morning, perhaps related to the international situation, but remains near 2025 lows.
   
2. Corporate strength seen underpinning bonds: Strong 2025 corporate profits to date could signal continued health in U.S. credit markets. Corporate profits rose to a new record in the third quarter, and Wall Street analysts expect continued strength in the current quarter that wraps up Wednesday. "This should bode well for creditworthiness going forward, and is why most corporate bonds, like those with investment grade ratings, should continue to perform well," said Collin Martin, head of fixed income research and strategy, Schwab Center for Financial Research. "High-yield bonds can still perform well, but we still see cracks in the lower rated parts of that market, like bonds with CCC ratings. Their default rates have picked up over the last two years, so potential credit losses could limit performance next year."
   
3. U.S. debt trends could keep Treasury yields strong: Though corporate yields remain relatively low, Treasury yields may not behave the same thanks partly to rising government debt and what appears to be lighter demand for Treasury auctions. The Treasury Department said earlier this month that foreign demand for U.S. Treasuries declined in October, as both foreign official and private holders were net sellers. "In fact, foreign investors saw a total of $61 billion in net outflows with their long-term Treasury holdings in October, the largest outflow since early 2021," my colleague Martin said. "If demand declines, long-term Treasury yields should stay elevated to attract new buyers." That's not necessarily good news for stocks, especially rate-sensitive areas like small caps, staples, and utilities. Investors should watch for the November Treasury International Capital (TIC) report due January 15, which provides another update on Treasury demand. Also be on the lookout for today's 3-month and 6-month Treasury auctions, results of which could be available by early afternoon.

On the move

Nvidia (NVDA) dropped 1% and Oracle (ORCL) fell 1.6% ahead of the open, with other major tech stocks also tracking lower including Micron (MU), Super Micro Computer (SMCI), and Apple (AAPL). The early tech weakness is a reversal from last week when tech stocks led on the way up but doesn't appear connected to any single fundamental factor. Analysts generally applauded Friday's news that Nvidia is spending $20 billion in a licensing agreement with Groq, which makes inference technology.

Shares of energy firms Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) rose modestly early Monday as crude oil futures (/CL) climbed 2%. Crude had fallen late last week on signs of progress in Ukraine talks before jumping today on rising Middle East tensions.

Novo Nordisk (NVO) dropped 1.5% this morning after Bloomberg reported the company reduced prices for obesity drug Wegovy in parts of China.

DigitalBridge Group (DBRG) soared 28% ahead of the open after Bloomberg said Japan's SoftBank is in advanced talks to buy the company.

Warner Brothers (WBD) dropped 1.4% Friday after the New York Post reported that the company wants Paramount to increase its hostile offer.

Target (TGT) jumped 2.8% Friday after the Financial Times reported that Toms Capital Investment Management had built a stake in shares.

Shares of cruise lines including Norwegian Cruise (NCL), Royal Caribbean (RCL), and Carnival (CCL) sank moderately Friday on limited news. Some of the pressure potentially reflected profit taking after their recent surge, Briefing.com noted.

Freeport-McMoRan (FCX) climbed more than 2% Friday as gold prices notched another record high to finish the week above $4,500 an ounce. Gold has soared as the dollar weakens and the Fed cuts rates.

Palantir (PLTR) dipped 2.8% Friday but news was thin, and the move could represent profit taking after shares put on a sharp rally over the last month before stalling near $200.

Bitcoin (/BTC) slipped 0.3% early Monday and remains in the range it's been in the last two weeks between $85,000 and $90,000.

Silver (/SI) slumped 3% early Monday after climbing to new record highs above $75 per ounce Friday. Gold also fell Monday. Both metals are on pace for their best year since 1979, Barron's noted. This comes in part on lower U.S. interest rates that may fall further. Inflation worries also play a part, along with geopolitics. Silver was hurt today when Tesla (TSLA) CEO Elon Musk posted that its rise was "not good," as it's needed in many industrial processes.

Copper (/HG) reached near all-time highs at $5.86 a pound as of Friday, buttressed by industrial demand. This is one reason materials stocks did well last week, climbing 2.8% and finishing second only to info tech among sectors. Materials are also the second-best sector over the last month, behind only financials.

The first zone of technical support for the S&P 500 index lies in a range between 6,825 and 6,840, Briefing.com notes. Below that there's support between 6,760 and 6,775.

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