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đŸ”„ Fed Rate Cuts Rattle Markets

+ White House Tightens Grip on AI Chip Exports

January 13, 2025

Good afternoon! Meta and Amazon are tapping the brakes on their diversity, equity, and inclusion (DEI) initiatives, pointing to legal risks and shifting political winds. Meta is ditching supplier diversity programs and scrapping its DEI training, blaming a "charged" policy landscape following Supreme Court rulings. Amazon is streamlining its approach, saying it’s dropping outdated programs to focus on initiatives with "proven outcomes."

MARKETS

*Stock data as of market close*

  • The Dow kicked off the week strong, rising 358 points (0.86%) to as investors pivoted into non-tech plays like Caterpillar, JPMorgan, and UnitedHealth. Meanwhile, the Nasdaq slipped 0.38%, logging its fourth straight loss as the tech sector continued its retreat. The S&P 500 inched up 0.16% after recovering from an early 0.9% dip—the index's biggest intraday comeback since September.

  • Big Tech couldn’t catch a break, with Nvidia down 2% and Apple sliding 1%. Rising bond yields and tighter export rules for AI products kept the pressure on the sector. Analysts say these “priced-to-perfection” names may face more turbulence as markets adjust to higher rates and shifting trade policies.

STOCKS
Winners & Losers

What’s up 📈

  • Sage Therapeutics skyrocketed 35.14% after Biogen made a $469 million acquisition offer. ($SAGE)

  • Intra-Cellular Therapies surged 34% after Johnson & Johnson agreed to acquire the drugmaker for $132 per share, valuing the company at $14.6 billion. ($ITCI)

  • Howard Hughes Holdings jumped 9.53% following Bill Ackman’s proposal to acquire the remaining stake in the company he doesn’t own. ($HHH)

  • U.S. Steel popped 6.13% after Cleveland-Cliffs and Nucor announced a joint bid to acquire the company. Cleveland-Cliffs rose 5.96%, while Nucor gained 3.99%. ($X, $CLF, $NUE)

  • Humana gained 6.81% alongside CVS Health (+7.31%) and UnitedHealth (+3.93%) after the U.S. government proposed a 4.3% increase in Medicare Advantage reimbursement rates. ($HUM, $CVS, $UNH)

What’s down 📉

  • Quantum computing stocks plummeted as executives scaled back expectations: Rigetti Computing fell 32.25%, D-Wave Quantum dropped 33.62%, and IonQ slid 13.83%. ($RGTI, $QBTS, $IONQ)

  • Edison International fell 11.89% as wildfires in Southern California spurred investigations into its possible role. ($EIX)

  • Macy’s dropped 8.08% after warning that holiday sales will likely be at the low end of its guidance. ($M)

  • Abercrombie & Fitch plunged 15.66% as its updated fourth-quarter forecast signaled potential growth slowdown. ($ANF)

  • Crypto stocks slumped as bitcoin slipped below $90,000: Coinbase fell 2.93%, and Mara Holdings dropped 3.75%. ($COIN, $MARA)

ECONOMY
The Fed’s Rate Cutting Future Sends Markets into a Tailspin

Last week’s hot jobs report delivered a curveball: 256,000 jobs added in December and unemployment down to 4.1%. The labor market's resilience prompted Wall Street to recalibrate its expectations, sending the 10-year Treasury yield to 4.8%, its highest since 2023, and dragging the 30-year yield close to 5%.

Why Yields Matter

When Treasury yields rise, bond prices fall—but the story doesn’t end there. Higher yields make bonds a more attractive option for investors seeking steady returns, causing a shift out of riskier assets like stocks. That’s why Monday saw tech-heavy indexes tumble as money flowed into fixed income. The surge in yields also raised fears that borrowing costs for everything—mortgages, credit lines, corporate loans—could climb, potentially slowing down economic growth.

Wall Street’s Rate Cut U-Turn

Before the jobs report, most analysts expected at least one or two rate cuts in 2025 to keep the economy cruising. Now, Bank of America has scrapped its forecast for cuts altogether, calling the report "gangbusters" and arguing that inflation risks remain high. Meanwhile, Goldman Sachs and JPMorgan still predict two quarter-point cuts but have pushed them back to mid-year.

Inflation in the Driver’s Seat

This week’s consumer and producer price reports could solidify—or shatter—the narrative. With oil prices rising and inflation still above the Fed's 2% target, there’s a growing possibility that the Fed won’t just hold rates steady but could even consider another hike if inflation doesn't cool.

The market's shift shows how quickly sentiment can turn. December was all about rate cuts; now, it's about whether any easing will happen at all. Investors are left wondering if they’re witnessing a soft landing—or if the economy’s strength could backfire and keep stocks in a chokehold.

NEWS
Market Movements

  • đŸ“ș Media giants cancel Venu Sports streaming service: Warner Bros. Discovery, Disney, and Fox scrapped their joint sports streaming service Venu Sports before launch, citing market saturation and a $220 million legal settlement with Fubo. The decision underscores a shift toward optimizing existing platforms amid heightened competition.

  • 📱 Meta's policy overhaul raises concerns: Meta's transition from third-party fact-checkers to a community notes system has sparked fears among advertisers about misinformation and brand safety. The company’s pivot, alongside the discontinuation of key DEI initiatives, has intensified debate about its strategic direction and commitment to content moderation.

  • 📉 Apple iPhone Sales Decline: Apple's global iPhone sales fell by 5% in the fourth quarter of 2024, with market share slipping from 19% to 18%. This decline is attributed to underwhelming upgrades and intensified competition from Chinese manufacturers like Xiaomi and Huawei, particularly in China, where sales dropped by 24% year-over-year.

  • 🛠 Microsoft forms new AI division: Microsoft created the CoreAI - Platform and Tools group to unify its AI and developer teams under former Meta exec Jay Parikh. CEO Satya Nadella emphasized the focus on an "AI-first" application infrastructure to strengthen Azure’s AI ecosystem.

  • 🔄 Honeywell Considers Breakup: Honeywell International Inc. is poised to proceed with a breakup following pressure from activist Elliott Investment Management to split. This strategic move comes amid discussions to enhance shareholder value and operational focus.

  • ⚖ Apple faces $1.8B UK lawsuit: Apple is defending against a $1.8 billion class action lawsuit in the UK, alleging its 30% App Store commission inflates app prices for consumers. The case marks a major legal challenge under new UK tech regulations and could reshape global app marketplace practices.

  • 🧠 Johnson & Johnson acquires Intra-Cellular Therapies: Johnson & Johnson's $14.6 billion acquisition of Intra-Cellular Therapies aims to bolster its neuroscience portfolio. The deal includes a 39% premium and highlights the potential of Caplyta, a leading schizophrenia and bipolar disorder treatment with strong revenue growth.

  • đŸ€– AWS and General Catalyst partner on AI healthcare tools: AWS and venture firm General Catalyst have teamed up to develop AI-driven healthcare solutions, leveraging Aidoc’s diagnostic tech and Commure’s clinical workflow automation. The partnership aims to enhance predictive care and operational efficiency across healthcare providers.

POLICY
White House Tightens Grip on AI Chip Exports

The Biden administration is making a final move before handing over the reins—introducing sweeping export restrictions on advanced AI chips. These rules aim to curb China’s access to cutting-edge technology by capping how much computing power can be sold to most nations. The twist? Close allies like Japan, the UK, and South Korea get a free pass.

Who’s Feeling the Heat

Companies like Nvidia, AMD, and Oracle are sounding the alarm, warning that the new rules could backfire by driving buyers toward Chinese competitors. Nvidia’s government affairs VP called the restrictions "sweeping overreach," arguing they could jeopardize America’s hard-won lead in AI. Stocks responded accordingly—Nvidia dipped nearly 2%, while AMD and Intel saw similar declines.

Commerce Secretary Gina Raimondo defended the move, emphasizing the delicate balance between national security and economic interests. While gaming chips and basic semiconductors are exempt, data centers in nations like China, Russia, and Iran face strict licensing requirements.

What Happens Next?

The incoming Trump administration will have the final say after a 120-day comment period. While the two administrations share concerns over China’s military ambitions, Trump’s team will determine whether to enforce or tweak the rules.

AI chips aren’t just about faster computers—they’re the backbone of national security. The restrictions could hinder China’s progress in developing military-grade AI while securing US dominance in the space. However, critics fear the controls might stifle innovation and open the door for workarounds in the global chip market.

Calendar
On The Horizon

Tomorrow

The week’s economic marathon is just warming up, with tomorrow offering a lighter start—two smaller reports to set the tone.

First is the NFIB Small Business Optimism Index, a check-in on how small businesses across the U.S. are holding up. They’re the backbone of the economy, so their outlook on things like sales and hiring can offer valuable hints about where things are headed.

Then comes the Producer Price Index (PPI), which tracks what domestic producers pay for supplies. November’s PPI came in above forecasts, though core PPI held steady. This time, analysts are hoping for signs of cooling, especially as the manufacturing sector faces ongoing headwinds.

NEWS
The Daily Rundown

  • đŸ”„ Santa Ana winds fuel more destruction: Strong winds have returned to Southern California, intensifying wildfires that have already claimed 24 lives and destroyed over 12,000 structures. Officials are investigating the fires' origins, focusing on an electrical tower near Eaton Canyon.

  • đŸ© Dunkin’ runs out of donuts: Stores in Nebraska, New Mexico, and Arizona posted signs about donut shortages due to a supplier issue. Munchkins are still available, raising questions about donut hole sourcing.

  • ✈ Mayor Bass faces backlash over Ghana trip: Los Angeles Mayor Karen Bass, criticized for being abroad during the wildfires, defended her diplomatic mission to Ghana, citing constant communication with city officials despite being out of the country.

  • 🏱 JPMorgan Chase faces employee backlash over office mandate: The bank’s return-to-office policy, effective in March, mandates full-time attendance, ending hybrid schedules for back-office staff. Employee concerns about commuting costs and work-life balance have led to internal dissent, with over 300 critical comments prompting JPMorgan to disable further replies. CEO Jamie Dimon remains firm, emphasizing in-person work's role in innovation and company culture.

  • đŸ„Ł Walmart recalls chicken broth due to spoilage risk: Over 12,000 cartons of Great Value Family Size Chicken Broth sold across nine states were recalled due to potential packaging failures that could lead to contamination. No illnesses have been reported, but customers are advised to discard the product and request a refund through Walmart’s website or stores.

  • 🏱 Office vacancy hits new high: Moody’s reported a 20.4% office vacancy rate in the 50 largest U.S. metro areas in Q4 2024, highlighting the growing preference for hybrid work. Outdated office spaces are being replaced with coworking hubs near transit, gyms, and eateries.

  • đŸ€– Robovacs level up at CES 2025: Roborock and Dreame unveiled robot vacuums with pincers that can pick up socks and washcloths. Dreame’s model even features legs to climb small steps, while Samsung’s robovac can snap intruder photos during home security breaches.

RESOURCES
The Federal Reserve Resource

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