Stock Rally Wanes as Bessent Fuels Dollar Advance: Markets Wrap
(Bloomberg) — Wall Street traders left stocks and bonds wavering before the Federal Reserve decision, with investors also looking to the megacap earnings season for clues on the artificial-intelligence trade. The dollar rose after Treasury Secretary Scott Bessent touted a strong currency.
Following a tech-led rally that drove the S&P 500 briefly above 7,000, equity gains faded. ASML Holding NV erased a surge that drove Europe’s most-valuable company to a record. Its solid results had earlier bolstered investor optimism about AI. Investors will get more clues on that front when Microsoft Corp. and Meta Platforms Inc. report later Wednesday.
Another notable reversal happened in the currency market, with the dollar rising after a slide to an almost four-year low. Adding fuel to that rebound were comments from Bessent on CNBC that the US hasn’t intervened to strengthen the yen, sending the Japanese currency slumping about 1%.
“Bessent’s comments that the US has not taken part in FX intervention to strengthen the yen and wants a ‘strong dollar’ look intended to stabilize the US currency,” said Krishna Guha at Evercore.
Wall Street is also bracing for a storm of Fed-related headlines. A decision to hold rates steady is likely to garner broad support from policymakers after a series of contentious cuts. Jerome Powell’s first press conference since the Fed was served grand jury subpoenas is bound to include questions about central bank independence.
“Rate cuts at the moment are not justified, given improving labor market data, stable inflation data and the simple fact that the Fed has just completed three rate cuts in a row,” said Glen Smith at GDS Wealth Management.
As for the start of the big-tech earnings season, Smith says he’s not expecting many surprises.
“The ‘Magnificent Seven’ names are still producing tremendous cash flows, and while some of their stock prices have underperformed the broader market, we still expect the tech sector to be among the best performing sectors in 2026,” he noted.
The S&P 500 was little changed. The yield on 10-year Treasuries rose two basis points to 4.26%. The dollar climbed 0.6%. Gold briefly topped $5,300.
With geopolitical noise easing for now — having stolen the limelight from what’s been a relatively quiet year for AI so far — attention may soon swing back to where tech and AI fundamentals really stand, according to Jim Reid at Deutsche Bank AG.
Given lingering valuation concerns, investors are heading into the tech earnings season seeking clarity on AI demand and monetization, as well as capital investment guidance, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
Microsoft and Meta Platforms are the first of Corporate America’s four biggest AI spenders to report, with results from Alphabet Inc. and Amazon.com Inc. due next week. This year alone, the quartet is expected to have about $505 billion in combined capital expenditures, up from roughly $366 billion estimated for 2025, according to data compiled by Bloomberg.
Any hint that they plan to spend even more than anticipated on developing AI could weigh on the stocks, while simultaneously giving a boost to the companies benefiting from the largesse, like chipmakers Nvidia Corp., Broadcom Inc. and Micron Technology Inc.
“While higher capex is likely partially priced in, we expect cloud service provider revenue growth to accelerate during the quarter, and evidence that AI efforts are bearing fruit in terms of advertising engagement should also be viewed positively,” said Hoffmann-Burchardi. “AI will remain a key driver for equity performance, and see beneficiaries broadening into the intelligence and application layers.”
Hoffmann-Burchardi expects US equities to stay supported and forecast the S&P 500 to reach 7,700 by year-end with “broad-based” gains.
“We see opportunities across the tech, health care, financials, utilities, and consumer discretionary sectors, and recommend investors with concentrated positions to diversify their exposure,” she said.
After three straight years of double-digit returns, concentrated around the largest companies levered to the AI trade, the market has “broadened out” to start the year with energy, materials and staples leading gains, noted Chris Senyek at Wolfe Research.
Optimism that the American economy is set to take off has fueled the rotation, with companies whose fortunes are closely tied to the business cycle attracting investor cash. At the same time, AI investing has become less monolithic in the tech sector, with investors starting to choose winners and losers.
“The ‘broadening out’ trade stops with big tech earnings,” said Senyek.“Our sense is the combination of solid fourth-quarter results, lower valuations, and continued AI tailwinds will likely pull investor interest back into these companies.
Until a more significant macro or regulatory shock forces a reset, earnings momentum is likely to stay elevated and big tech will continue to lead the market narrative,” according to Chris Brigati at SWBC.
“Big tech and the AI trade continue to push higher with remarkable strength, and investors should stay constructive on near‑term growth while remaining realistic that the current pace will eventually cool,” he said.
When that happens, Brigati says disciplined stock selection becomes critical: the long‑term winners will be the companies that execute flawlessly, protect margins, lead in innovation, and stay aligned with shifting consumer spending patterns.
One of the concerns for the bulls has been the inability of the Nasdaq 100 to confirm the new all-time high in the S&P 500 in a “significant way,” according to Matt Maley at Miller Tabak.
“If the Nasdaq 100 can push to a meaningful new high — and confirm these record highs from the S&P 500 and Russell 2000 — it will still be something that will give the bulls a nice boost as we move through the end of January and into February,” he said.
Corporate Highlights:
Texas Instruments Inc. gave a surprisingly robust forecast for the first quarter, indicating that demand for industrial equipment and vehicles is recovering from a rough patch. Amazon.com Inc. is cutting 16,000 corporate jobs in an effort to remove layers of bureaucracy and “increase ownership,” becoming the latest company to target managers for layoffs in recent years. ASML Holding NV posted record orders in the fourth quarter, even as the Dutch semiconductor equipment maker’s executives faced questions during a call with analysts about whether it can sustain its artificial intelligence-fueled momentum. SK Hynix Inc. reported its strongest quarterly results to date, underscoring the depth of an artificial intelligence wave that’s triggered an unprecedented surge in memory demand. Blackstone Inc. is considering expanding its financial commitment to Oracle Corp.’s data-center project in Michigan even as other investors have balked at the risks. AT&T Inc. reported fourth-quarter profit and revenue that beat analysts’ estimates, buoyed by customers who subscribed to more than one connectivity service. Starbucks Corp. Chief Executive Officer Brian Niccol delivered the best evidence yet that his turnaround plan is taking hold, with the coffee chain posting unexpectedly strong growth and a solid outlook for the rest of the year. Delta Air Lines Inc. has channeled its optimism for international travel into another order for widebody aircraft, agreeing to purchase 31 Airbus SE jets just days after it announced a similar-sized deal from Boeing Co. Eli Lilly & Co. struck a deal worth more than $1.1 billion with German biotech Seamless Therapeutics GmbH to develop gene therapies for hearing loss. Elevance Health Inc. forecast a worse 2026 profit outlook than analysts were expecting and lowered its long-term margin target as it grapples with weakness in its government health plan business, the latest blow to health insurers hammered this week by bad news. Brinker International Inc. boosted its full-year profit outlook as the owner of Chili’s said the restaurant chain will continue to see strong demand this year. GE Vernova, one of three global manufacturers of the natural gas turbines crucial to powering the AI boom, said it is in frequent talks with the Trump administration about ramping up production. Deutsche Bank AG was raided by German authorities as part of a money laundering probe looking at past dealings by staff with firms linked to the now-sanctioned Roman Abramovich, according to people familiar with the matter. The Swiss government is entering the next stage of the political process to set new capital requirements for UBS Group AG, expecting that the bank will ultimately be forced to accept most of its demands. Volkswagen AG plans to increase exports of cars made in China as the manufacturer tries to benefit from the Asian country’s low production costs amid a bruising price war there. Kia Corp. said US tariffs cost it 3.3 trillion won ($2.3 billion) last year and the South Korean automaker will roll out incentives to boost sales as competition intensifies. BYD Co. is weighing options to expand in India, including local assembly to meet surging demand for the Chinese automaker’s electric vehicles, according to people familiar with the matter. Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 1 p.m. New York time The Nasdaq 100 rose 0.3% The Dow Jones Industrial Average was little changed The MSCI World Index fell 0.3% Bloomberg Magnificent 7 Total Return Index fell 0.2% The Russell 2000 Index fell 0.5% Currencies
The Bloomberg Dollar Spot Index rose 0.6% The euro fell 0.9% to $1.1931 The British pound fell 0.5% to $1.3777 The Japanese yen fell 0.9% to 153.63 per dollar Cryptocurrencies
Bitcoin rose 0.8% to $89,703.76 Ether was little changed at $3,009.41 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.26% Germany’s 10-year yield declined two basis points to 2.86% Britain’s 10-year yield advanced two basis points to 4.54% The yield on 2-year Treasuries advanced one basis point to 3.58% The yield on 30-year Treasuries advanced one basis point to 4.87% Commodities
West Texas Intermediate crude rose 0.8% to $62.89 a barrel Spot gold rose 2.1% to $5,288.97 an ounce ©2026 Bloomberg L.P.
