Morning in New York: the situation is not favorable to excessive risk taking

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

Investors' attention is focused on the events taking place on the currency market, where a surge in volatility is observed: the yen has sharply strengthened against the dollar amid speculation about possible actions of the US and Japan to support it. This creates a threat of curtailing carry trade operations, which traditionally provokes capital outflow from U.S. risk assets. Volatility is increasing in other markets, especially in the metals sector. The price of gold for the first time in history exceeded the mark of $5 thousand, and silver broke upwards the level of $100.

The negative background is reinforced by the political agenda. According to the Polymarket platform, the probability of a US government shutdown by January 31 is estimated at about 80%. The budget crisis has worsened after the tragic events in Minneapolis, against the background of which the contradictions between Republicans and Democrats in Congress have intensified. In addition, U.S. President Donald Trump threatened to raise import tariffs for Canada, as he suspects that its trade agreement with China can be used to circumvent U.S. restrictions. However, skepticism prevails in investor sentiment about the implementation of these threats.

The focus of trading will be on the release of Durable Goods Orders data for December (consensus: +1% m/m, November: -2.2% m/m). It is important for investors to see confirmation that businesses continue to invest in equipment upgrades despite high interest rates and political uncertainty.

The improved earnings outlook for the S&P 500 companies for the fourth quarter suggests an 8.1% y/y increase. Steel Dynamics (STLD) and Dynex Capital (DX) will report results before the opening of the trading session. Nucor (NUE), Brown & Brown (BRO), AGNC Investment (AGNC), W.R. Berkley (WRB), Alexandria Real Estate (ARE), Sanmina (SANM) and Western Alliance (WAL).

Futures on US stock indices are trading slightly down. We assess the balance of risks for the upcoming trades as neutral with moderate volatility with possible spikes due to increased currency fluctuations. We focus on the S&P 500 movement in the range of 6860-6960 points (from -0.8% to +0.6% of the previous session's closing level).

- According to Reuters sources, Samsung Electronics plans to start mass production of next-generation HBM4 memory chips in March. This will reduce the risk of hardware shortages, which supports Nvidia's (NVDA) premarket quotes.

-Baker Hughes (BKR) reported fourth-quarter adjusted earnings growth of 11% YoY, demonstrating cost management efficiency amid stable international demand, which put the company's quotes on the plus side before the start of the main session.

- According to the Wall Street Journal, Merck (MRK) has pulled out of takeover talks for biotech Revolution Medicines (RVMD), which could have led to a strategic strengthening of its portfolio of novel cancer therapies based on inhibitors that block proteins that cause tumor growth.

- Air carriers, particularly Delta Air Lines (DAL), are under pressure from Hurricane Fern, which hit the East Coast and Midwest of the United States. Massive flight cancelations (especially at the Atlanta hub) and power outages pose risks to the short-term financial performance of airlines and the insurance sector in the first quarter.

January 23 trading on the U.S. exchanges ended multidirectionally below the daily highs. S&P 500 added a symbolic 0.03%, Nasdaq 100 rose by 0.34%, Dow Jones declined by 0.58%, Russell 2000 fell by 1.82%.

Also, the issuers of the "Magnificent Seven" closed without a single dynamics: shares of Microsoft (MSFT: +3.28%) enjoyed increased demand of buyers on the background of optimism in the AI-segment, quotes of Alphabet (GOOGL: -0.79%) were under pressure.

Materials producers (XLB: +0.91%) traded better than the market as a whole, supported by the rally in precious metals. The financial industry (XLF: -1.38%) was the outsider due to sell-off in shares of credit card issuers and banks.

Back on January 23, gold came close to $5000 for the first time in history, while WTI crude oil rose 2.9% on a weaker dollar (DXY: -0.8%).

S&P Global's business activity index (PMI) in the manufacturing sector for January, according to preliminary data, rose to 51.9 points from the consensus of 51.8, while the services sector stood at 52.5 points from forecasts of 53. This indicated uneven economic growth.

On a positive note, the final reading of the consumer sentiment index from the University of Michigan rose to 56.4 points with average guidance at 54.

-Booz Allen Hamilton (BAH: +6.8%) posted solid earnings and free cash flow results amid strong demand from the national security industry. Investors ignored the revenue decline caused by the aftermath of the shutdown, focusing on raising the full-year EPS guidance and increasing the quarterly dividend.

- Exchange players were positive on CSX Corp (CSX: +2.4%)'s new CEO's strategy to tightly control costs and improve operating margins by 200-300 bps, leaving the underperformance of earnings to average expectations.

- According to media reports, Chinese regulators have authorized Alibaba, Tencent, ByteDance to place orders for Nvidia's (NVDA: +1.5%) H200 chips.

- Alcoa's (AA: -1.5%) alumina supply outlook came in below consensus, although actual earnings and revenue for the latest quarter beat Wall Street expectations.

This article was AI-translated and verified by a human editor