Stocks Rally on a Benign US Inflation Report

The S&P 500 Index ($SPX) (SPY) today is up +1.66%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.53%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.13%.  March E-mini S&P futures (ESH25) are up +1.65%, and March E-mini Nasdaq futures (NQH25) are up +2.09%. 

Stocks today are moving sharply higher, with the S&P 500 climbing to a 1-week high and the Dow Jones Industrials climbing to a 2-1/2 week high.  Stocks soared, and bond yields tumbled today after a Fed-friendly US December consumer price report showed an unexpected easing of core inflation. The slowdown in consumer prices has bolstered speculation that the Fed will still be able to cut interest rates this year.  Also, better-than-expected quarterly earnings from big US banks today lifted the overall market after Citigroup, JPMorgan Chase, Blackrock, Goldman Sachs, Bank of New York Mellon, and Wells Fargo all beat consensus estimates.

US MBA mortgage applications rose +33.3% in the week ended January 10, with the purchase mortgage sub-index up +26.9% and the refinancing mortgage sub-index +43.5%.  The average 30-year fixed rate mortgage rose +10 bp to an 8-month high of 7.09% from 6.99% in the prior week.

The US Dec CPI rose to +2.9% y/y from +2.7% y/y in Nov, right on expectations.  Dec CPI ex-food and energy unexpectedly eased to +3.2% y/y +3.3% y/y in Nov, better than expectations of no change at +3.3% y/y.

The US Jan Empire manufacturing survey of general business conditions unexpectedly fell -14.7 to an 8-month low of -12.6, weaker than expectations of an increase to 3.0.

Richmond Fed President Barkin said demand in the US economy is solid, and the Fed should remain restrictive to return inflation to 2%.

The markets are looking toward Thursday’s US retail sales report to see if consumer spending is holding up (Dec retail sales expected +0.6% m/m). 

Earnings season begins this week as companies begin reporting Q4 earnings.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings to grow 7.5% in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +1.37%.  China’s Shanghai Composite Index closed down -0.43%.  Japan’s Nikkei Stock 225 fell closed down -0.08%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +29 ticks.  The 10-year T-note yield is down -13.7 bp to 4.655%.  Mar T-notes today are sharply higher after the US Dec core CPI rose less than expected, a dovish factor for Fed policy.  T-notes also found support on signs of US economic weakness after the Jan Empire manufacturing survey general business conditions unexpectedly to an 8-month low.  In addition, T-notes are climbing on positive carryover from rallies in European government bonds after the UK Dec CPI rose less than expected. 

T-notes fell from their highs today after Richmond Fed President Barkin said the Fed should remain restrictive to return inflation to 2%. Also, today’s sharp rally in stocks curbs safe-haven demand for T-notes.

European government bond yields today are moving lower.  The 10-year German bund yield is down -10.3 bp to 2.549%.  The 10-year UK gilt yield is down -17.7 bp to 4.712%.

Eurozone Nov industrial production rose +0.2% m/m, which is right on expectations.

ECB Vice President Guindos said, “We expect to continue to further reduce the restrictiveness of monetary policy as the latest information suggests that the economy is losing momentum.”

UK Dec CPI unexpectedly eased to +2.5% y/y from +2.6% y/y in Nov, better than expectations of no change at +2.6% y/y.  Dec core CPI eased to +3.2% y/y from +3.5% y/y in Nov, better than expectations of +3.4% y/y.

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Home builders and building suppliers are climbing today with a sharp drop in T-note yields, a supportive factor for housing demand.  Builders FirstSource (BLDR) is up more than +6% to lead gainers in the S&P 500.  Also, Lennar (LEN), Mohawk Industries (MHK), Lowe’s (LOW),  DR Horton (DHI), KB Home (KBH), and Toll Brothers (TOL) are up more than +2%.

Edison International (EIX) is up more than +6% after Ladenburg Thalmann upgraded the stock to neutral from sell, citing valuation. 

Intuitive Surgical (ISRG) is up more than +6% to lead gainers in the Nasdaq 100 after reporting preliminary Q4 revenue of $2.41 billion, better than the consensus of $2.21 billion.

Bank of New York Mellon (BK) is up more than +6% after reporting Q4 net interest revenue of $1.19 billion, above the consensus of $1.06 billion. 

Wells Fargo (WFC) is up more than +6% after reporting Q4 net interest income of $11.84 billion, better than the consensus of $11.70 billion.

Goldman Sachs (GS) is up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q4 net revenue of $13.87 billion, well above the consensus of $12.37 billion.

Citigroup (C) is up more than +5% after reporting Q4 FICC sales and trading revenue of $3.48 billion, well above the consensus of $2.94 billion.

BlackRock (BLK) is up more than +3% after reporting Q4 adjusted EPS of $11.93, stronger than the consensus of $11.46. 

Weyerhaeuser (WY) is up more than +2% after CIBC upgraded the stock to outperform from neutral with a price target of $35. 

Keros Therapeutics (KROS) is down more than -16% after terminating a Phase 2 trial of its experimental therapy for patients with a lung disorder, citing side effect concerns. 

Today’s rally in the broader market is weighing on defensive pharmaceutical stocks and their suppliers.  Viatris (VTRS) is down more than -3% to lead losers in the S&P 500.  Also, McKesson (MCK) and AbbVie (ABBV) are down more than -2%.  In addition, Cencora (COR) and Abbott Laboratories (ABT) are down more than -1%. 

Health insurance stocks are under pressure today after the FTC said units of CVS Health, Cigna Group, and UnitedHealth Group charged significantly more than the national average acquisition cost for dozens of specialty generic drugs, inflating costs for consumers and insurers.  As a result, Elevance Health (ELV) is down more than -2%.   Also, Cigna Group (CI), Molina Healthcare (MOH), and Centene (CNC) are down more than -1%.  In addition, UnitedHealth Group (UNH) is down -0.52%. 

Earnings Reports (1/15/2025)

Bank of New York Mellon Corp/T (BK), Blackrock Inc (BLK), Citigroup Inc (C), Goldman Sachs Group Inc/The (GS), JPMorgan Chase & Co (JPM), Wells Fargo & Co (WFC).