The Federal Reserve leadership team may face changes, global market risk sentiment cools down, and Tech Stocks decline collectively.

Market Highlights Review

On Friday, global stock markets declined under pressure, with the three major US indices all falling. The Dow Jones Industrial Average dropped 0.51%, the S&P 500 fell 1.07%, and the Nasdaq Composite plunged 1.69%. European markets were also affected, with Germany’s DAX 30 down 0.45%, France’s CAC 40 decreasing 0.21%, and the UK FTSE 100 slipping 0.56%.

In digital assets, Bitcoin is currently priced at $87.89K, up 0.75% over 24 hours; Ethereum is at $2.96K, up 0.72%. Gold rose slightly by 0.47%, closing at $4299.2 per ounce, while crude oil remained weak, with WTI down 0.67% to $57.5 per barrel. In the forex market, the US dollar index edged higher to 98.39, and the Japanese yen appreciated 0.17% against the US dollar.

The US Treasury market experienced increased volatility, with the 10-year Treasury yield rising to 4.18%, up 3 basis points; the 30-year yield climbed to 4.84%, reaching a new high since September; the 2-year Treasury yield fell back to 3.52%.

Hong Kong stocks saw the night session futures close at 25,735 points, down 242 points from yesterday’s Hang Seng Index close of 25,976.

Fed Chair Nominee Changes, Rate Cut Expectations and Independence Concerns Coexist

Trump recently indicated a preference for former Fed Governor Kevin Warsh to succeed current Chair Powell, with consideration also given to White House National Economic Council Director Kevin Hassett. Among the two, Warsh is the primary favorite of Trump. This statement sparked positive reactions on Wall Street; in contrast, Hassett faces skepticism for potentially being overly compliant with White House rate cut demands, raising concerns about the Fed’s independence.

However, Trump also emphasized that the new Fed leadership should consult him on interest rate policies, and expressed hope that within a year, rates could be lowered to 1% or even lower to ease the US Treasury’s financing burden of $30 trillion. Powell’s term ends in May next year, concluding his 8-year tenure. Notably, Powell has repeatedly rejected Trump’s aggressive rate cut proposals, leading to multiple public criticisms from the President.

Treasury Yields Hit New Highs, Inflation Worries Take Center Stage

Long-term US government bonds came under pressure, with the 30-year Treasury yield reaching a new high since early September. This week, it briefly climbed to 4.86%, an increase of about 5 basis points. This movement reflects deep market concerns over inflation prospects. Chicago Fed President Goolsbee and Kansas Fed President Scheld both stated that inflation risks are key reasons supporting their stance to maintain current policies and oppose further rate cuts.

Strategist Edward Harrison pointed out that Goolsbee’s inflation concerns indicate US Treasuries face downside risks. While traders still expect two 25 bps rate cuts by the end of 2026, such voices highlight internal policy disagreements.

AI Spending Concerns Intensify, Risk Sentiment Significantly Cools

As Treasury yields continue to rise and investors harbor doubts about AI companies’ massive capital expenditures and returns, global market risk appetite has notably cooled. Technology stocks are the most affected, with Broadcom’s stock surging over 3% after hours but ultimately unable to reverse the overall downward trend.

Goldman Sachs Optimistic Outlook, S&P Expected to Rise Over 10% Next Year

Despite short-term market volatility, Goldman Sachs remains optimistic about US stocks. The bank reaffirmed its 2026 target for the S&P 500 at 7,600 points, roughly 10% above current levels. Goldman expects earnings per share of S&P 500 components to grow 12% next year and another 10% in 2027; productivity gains driven by AI are projected to contribute 0.4 and 1.5 percentage points respectively.

Company Earnings Highlights

Broadcom Surpasses Expectations, AI Chip Revenue Hits New High

Semiconductor design giant Broadcom announced its Q4 results: net profit increased 97% YoY to $8.5 billion, with adjusted EPS of $1.95, beating Wall Street’s expected $1.86; revenue rose 28% YoY to $18 billion, surpassing the expected $17.5 billion.

Among these, AI chip sales in the semiconductor solutions segment reached $11.07 billion, up 22% YoY, exceeding market expectations. Infrastructure software sales totaled $6.94 billion, up 26%, also outperforming Wall Street estimates.

Looking ahead to Q1, Broadcom projects revenue of about $19.1 billion, up 28% YoY, above the previous estimate of $18.3 billion. CEO Hock Tan revealed that the company expects AI chip sales in Q1 to double annually to $8.2 billion, covering customized AI chips and AI networking chips.

Oracle Bonds Risk Rising, Default Risk Indicator Hits 16-Year High

Tech giant Oracle’s bond market performance is concerning. Bloomberg earlier reported delays in completing data centers involved with OpenAI, pushed from 2027 to 2028 due to labor and raw material shortages. Oracle quickly denied the report, stating all contractual commitments with OpenAI remain unchanged and projects are proceeding as scheduled.

However, market confidence has shaken. Oracle’s $18 billion senior bonds issued in September have continued to decline, with investor paper losses expanding to about $1.35 billion. The bonds mature in 2035, with a coupon rate of 5.2%, and the 5-year credit default swap spread widened to 1.71 percentage points on Friday, higher than comparable US Treasuries, with a yield of 5.9%, surpassing the average junk bond yield of 5.69%. This marks the highest default risk indicator for Oracle bonds in 16 years.

Elon Musk’s SpaceX Plans to Go Public Next Year, Trillionaire Opportunities Emerge

According to multiple reports, Elon Musk’s space exploration company SpaceX is expected to initiate an IPO in the second half of next year, with an estimated valuation of around $1.5 trillion, close to Saudi Aramco’s $1.7 trillion valuation in 2019. Musk owns about 42% of SpaceX, meaning if the IPO is successful, Musk could become the world’s first trillionaire.

Geopolitical and Policy Developments

US-White Relationship Shows Signs of Turning, Sanctions Lifted and Pardons Issued

Positive signals emerge in US-Belarus relations. The US announced the lifting of sanctions on Belarusian potash fertilizers. In response, Belarusian President Lukashenko pardoned 123 detainees, including spies, terrorists, and extremists from multiple countries. Among them is Nobel Peace Prize laureate and Belarusian human rights activist Ales Bialiatski, as well as opposition leader Kolesnikova.

Bialiatski, sentenced to 10 years in prison in 2023 for smuggling and funding activities, expressed surprise at his release and claimed there are still over 1,000 political prisoners in Belarus. Lukashenko also pledged measures to prevent balloons from flying from Belarus into neighboring Lithuania, a matter that has previously caused flights at Vilnius Airport to be suspended.

US Sanctions Venezuela Oil Tankers, Hong Kong-Flag Ships Listed

The US Treasury Department imposed sanctions on six Venezuelan oil tankers and related companies, including the Hong Kong-flagged TAMIA, operated by UK-registered COSCO Shipping Services Ltd. The sanctions allege fraud and unsafe shipping practices, with these vessels continuing to support the Maduro regime’s funding. The US accuses these tankers of transporting Venezuelan oil to Asia, repeatedly altering signals to hide their locations and loading activities.

Trump Expresses Uncertainty About Next Year’s Political Outlook

In an interview with The Wall Street Journal, Trump said he is uncertain whether Republicans can maintain control of the House in next year’s midterm elections, citing the need for time for his economic policies to take effect. Trump stated that some policies involve attracting foreign investment to transform the US economy, but the timing of implementation is unpredictable.

Regarding the Supreme Court’s review of the US global tariff system, Trump emphasized that if the court opposes it, he will consider other taxation methods, though efficiency would significantly decline. Trump believes current inflation is a legacy issue from previous administrations and expects inflation to improve when the election campaign begins in a few months.

Key Focus Items

• China November retail sales YoY data
• China November industrial added value above scale YoY data
• Eurozone October industrial production monthly rate
• Canada November CPI monthly rate
• US December NY Fed manufacturing index
• Fed Governor Milani speech
• US December NAHB housing market index
• Fed Williams speech on economic outlook