Market Today: Cerence AI Partners with Nvidia, Wolfe Research's Top Picks for 2025

Weekly Stock Market Overview

The stock market experienced a mixed week, marking the final sessions of 2024 and the Santa Claus Rally period. While major indices lost momentum towards the year's end, a slight rebound was observed as the week concluded. Small-cap stocks outperformed larger peers, leading the Russell 2000 to rise by 1.1%. In contrast, the S&P 500 and Nasdaq Composite each declined by 0.5% for the week. Overall, the S&P 500 surged by 23.3% in 2024, and the Nasdaq Composite closed 28.6% higher for the year.Despite the recent downturn, the S&P 500 ended the Santa Claus Rally period lower, which historically averages a 1.3% gain since 1950, according to The Stock Traders Almanac. It's worth noting that in years when the rally underperforms, significant downturns often follow, although this was not the case last year when the S&P 500 logged a 23.3% gain for 2024. The S&P 500 also closed below its 50-day moving average, which shifted from support to resistance.

S&P 500 Sector Performance

Only three S&P 500 sectors closed higher this week:

• Energy: +3.2%
• Real Estate: +0.6%
• Health Care: +0.01%

The sectors experiencing the largest declines were:

• Materials: -2.1%
• Consumer Discretionary: -1.5%
• Consumer Staples: -1.4%

Trading volume was light due to holiday-related market closures, with several foreign markets closed or closing early for the New Year's holiday. U.S. markets were open for a full day on Tuesday and closed on Wednesday.

Monday: Market Movement and Economic Data

The stock market closed with losses on Monday, continuing a broad retreat from Friday. Despite some technical movements that helped indices close above session lows, the S&P 500 dipped below its 50-day moving average, initially attracting buy-the-dip interest. NVIDIA (NVDA, Financial) experienced a turnaround that aided the indices in moving off session lows. The overall sentiment remained negative, influenced by profit-taking and hesitation ahead of holiday closures.Economic data for Monday included:

• December Chicago PMI: 36.9 (consensus 42.7), prior 40.1
• November Pending Home Sales: 2.2% (consensus 0.9%), prior revised to 1.8% from 2.0%

Tuesday: Year-End Trading

On the year's final trading day, the market closed with losses at the index level. The Nasdaq Composite, which rose 28.6% in 2024, logged a 0.9% decline. The S&P 500 fell 0.4%, and the Dow Jones Industrial declined 0.1%, while the Russell 2000 outperformed, closing 0.1% higher. Initial rally-mode faded as the 10-year yield increased, and profit-taking in mega-cap stocks added to the index-level weakness.Economic data for Tuesday included:

• October FHFA Housing Price Index: 0.4%, prior 0.7%
• October S&P Case-Shiller Home Price Index: 4.2% (consensus 4.2%), prior 4.6%

Thursday: New Year Trading Begins

The stock market faced turbulence on the first session of the new year. Initial gains from buy-the-dip trading gave way to declines driven by rising rates and mega-cap losses. Apple (AAPL, Financial) and Tesla (TSLA) saw extended declines, contributing to sector losses. Apple's decline was linked to cautious iPhone demand comments from UBS analysts, while Tesla's weakness followed its Q4 deliveries report.Economic data for Thursday included:

• Initial jobless claims for the week ending December 28 decreased by 9,000 to 211,000 (consensus 224,000)
• Total construction spending was unchanged month-over-month in November (consensus 0.2%)
• December S&P Global US Manufacturing PMI - Final: 49.4
• MBA Mortgage Applications Index: Down 21.9% from two weeks prior

Friday: Market Rally

The stock market rallied on Friday, driven by buy-the-dip interest. The S&P 500 closed 1.3% higher than Thursday but was 0.5% lower since the start of the Santa Claus rally period. Gains were broad-based, with 24 of the 30 Dow components registering gains, and all 11 S&P 500 sectors closing higher. Mega-cap names outperformed, boosting overall index performance.Economic data for Friday included:

• December ISM Manufacturing Index: 49.3% (consensus 48.5%), prior 48.4%
• EIA Natural Gas Inventories: -116 bcf (prior -93 bcf)

AAPL,TSLA,NVDA

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Today's News

Cerence AI (CRNC) announced an expanded collaboration with Nvidia (NVDA, Financial), which led to a significant surge in Cerence's stock price by over 100%. This partnership aims to enhance Cerence's large language models through Nvidia AI Enterprise, creating a buzz among AI stocks. As a result, Nvidia's shares rose by about 4%, while other AI-focused companies like Microsoft (MSFT, Financial) and Alphabet (GOOGL, Financial) also experienced gains.

Wolfe Research has identified Bank of America (BAC, Financial), Wells Fargo (WFC, Financial), LPL Financial (LPLA, Financial), Robinhood Markets (HOOD, Financial), KKR & Co. (KKR, Financial), and Ares Management (ARES) as top picks for 2025. LPLA is particularly favored due to expected outperformance driven by higher rates and cash growth, while HOOD received an Outperform rating.

Carvana (CVNA, Financial) continues to face selling pressure following a negative report from Hindenburg. Despite this, J.P. Morgan's Rajat Gupta sees potential in the stock, maintaining an Overweight rating and suggesting the current price as an opportunity to buy on weakness.

Quantum-Si (QSI, Financial) announced a direct offering of 15.6 million shares at $3.20 each, aiming to raise approximately $50 million. The company plans to use the proceeds for working capital and general purposes, but the announcement led to a more than 12% drop in its share price.

Boeing (BA, Financial) and the U.S. Department of Justice are negotiating a revised plea deal related to the 737 MAX crashes. A previous agreement was rejected due to a diversity and inclusion provision, and both parties are working towards a new arrangement by February 16.

Nvidia (NVDA, Financial) remains the most owned semiconductor stock among U.S. fund managers, with ownership rising to 72% by the end of December 2024. Other heavily owned semiconductor stocks include Broadcom (AVGO) and Applied Materials (AMAT).

Microsoft (MSFT, Financial) plans to invest $80 billion in data centers for AI infrastructure in fiscal 2025, with over half of the spending in the U.S. This move underscores Microsoft's commitment to AI and its partnerships with companies like OpenAI.

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