Investors still struggling to process the implications of a new administration in Washington, D.C., seem soothed by the Treasury secretary again. But stocks closed mixed on Thursday ahead of a critical earnings announcement from a Mag 7 stock. And an old-school industrial conglomerate's plans for the future generated some big questions about present value.
"He and I are focused on the 10-year Treasury," said Treasury Secretary Scott Bessent of his and President Donald Trump's economic policy priorities in an interview with Fox Business on Wednesday. "He is not calling for the Fed to lower rates."
Amen, Brother Bessent: Here's why the yield on the 10-year U.S. Treasury note is so important right now.
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Indeed, the 10-year yield reached a 2025 low of 4.400% and closed at 4.438% on Thursday after the Treasury secretary suggested President Trump is less inclined to disrupt the Federal Reserve than a lot of campaign-trail talk might have led markets to price in.
At the same time, Bessent's emphasis on expanding energy supply omits other significant inputs for the 10-year. "Concrete measures will be closing the budget deficit or reducing the budget deficit and rethinking this whole tariff strategy," said investment strategist Stephen Miller of Australia-based money manager Grant Samuel Funds Management.
Miller notes that boosting energy supply "will help." Accounting for the budget deficit and tariffs as well as immigration, the strategist is "not yet convinced that it'll be enough to send 10-year bond yields lower."
The 10-year climbed as high as 4.896% on January 13 from 3.621% on September 16, 2024, the day before the Federal Open Market Committee started a campaign to cut interest rates that's now on pause.
At the closing bell, the tech-heavy Nasdaq Composite was up 0.5% to 19,791. The broad-based S&P 500 added 0.4% to 6,083. But the blue chip Dow Jones Industrial Average gave back 0.3% to 44,747.
Focus on the jobs market
Perhaps investors and central bankers alike can focus on fundamental factors such as the health of the labor market, starting with the release of the first nonfarm payrolls report of 2025 on Friday morning at 8:30 am Eastern Time.
According to Pallas Capital Advisors Chief Investment Officer Gaurav Mallik, Friday's jobs report "will reveal whether or not the robust pace of hiring we saw at the end of 2024 continued into early 2025."
The Department of Labor reported on Thursday that initial jobless claims rose 11,000 to 219,000 in the week ending February 1.
"Thursday's data is still indicative of a strong labor market," Mallik said, "which is supportive of a continued rate cut pause by the Federal Reserve."
Honeywell's breakup hurts the Dow
Honeywell International (HON) fell 5.6% and was the worst-performing Dow Jones stock after management announced its intention to split the industrial conglomerate into three separate publicly traded companies.
CEO Vimal Kapur said the split will allow Honeywell Automation, Honeywell Aerospace and Advanced Materials to "pursue tailored growth strategies" and "unlock significant value for shareholders and customers."
CFRA Research analyst Jonathan Sakraida said the separation creates "a simplified operating structure and optimized capital allocation alignment."
According to Sakraida, the split will be completed by the second half of 2026. The analyst reiterated his Buy rating on HON but trimmed his 12-month price target to $245 from $250.
Amazon is up
Amazon.com (AMZN) added 1.1% ahead of its post-closing-bell turn on the earnings calendar. Much is riding on results for the e-commerce giant's Amazon Web Services segment and its artificial intelligence (AI) initiatives.
The FactSet-compiled consensus expects Amazon to report earnings per share of $1.49, up from $1.00 a year ago, on revenue of $187.3 billion, up from $170 billion. AWS revenue will be $28.8 billion, up from $24.2 billion.
Investors will pay particular attention to Amazon's capex plans for coming years after fellow Magnificent 7 members Meta Platforms (META), Microsoft (MSFT) and Google parent Alphabet (GOOGL) confirmed their respective budgets for AI investment in recent days.
BofA Securities analyst Justin Post says "cloud demand likely remained robust" in the fourth quarter and expects "strong AI demand to continue into 2025."
Post rates Amazon.com stock Buy with a 12-month price target of $255, upside of 6.8% from Thursday's pre-earnings announcement closing price.
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