Bank Earnings, CPI Kick off Pivotal Day for Stocks
07:50 Share

Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, January 15th.

Big bank earnings and consumer prices approach the starting gate in what could be a pivotal day on Wall Street. While bank results are widely expected to be solid, the Consumer Price Index, or CPI, for December at 8.30 a.m. ET might have a bigger impact, especially if it's hotter than expected and gives Treasury yields another bump.

For CPI and Core CPI, analysts expect 0.3% and 0.2% monthly growth, respectively. The November readings were both 0.3%. Core excludes food and energy. If Core CPI does fall to 0.2%, that would put it back at mid-2024 levels, a time of progress on inflation that ultimately helped lead to rate cuts starting in September.

However, year-over-year core consensus is 3.3% according to Trading Economics, no improvement from a month earlier and well above the 2% Federal Reserve target. CPI follows yesterday's Producer Price Index, or PPI, that showed wholesale prices cooling in December, up 0.2% for the month. Core PPI was flat. Those were below estimates for headline growth of 0.3% and core of 0.2%.

Though PPI is important, CPI is likely more influential. As yesterday's session rolled on, investors focused more on the upward move in year-over-year PPI to 3.3% from the previous 3%, which might have weighed on long-term treasuries. Also, analysts noted a jump in some costs that might translate into gains for today's CPI.

Bond yields will likely remain in the driver's seat for equities, with both short-term and longer-term correlations remaining in negative or inverse territory, said Lizanne Saunders, chief investment strategist at Schwab. The U.S. 10-year Treasury note yield initially slipped Tuesday following PPI, but ended back up around 4.79 percent, down just two basis points.

Shorter-term yields slid slightly more, likely getting a boost from PPI, but the CME FedWatch tool still builds in 97% chances of a Fed rate pause this month and only around a 20% chance of a rate cut this quarter. Higher yields aren't just a U.S. problem, but a global one. They reflect steep fiscal deficits, stubborn inflation, and uncertainty regarding the potential for increased tariffs on goods imported into the U.S.,

The stubborn yield strength kept major indexes mainly on the defensive yesterday, despite a midday rally attempt that basically went nowhere. Turning away from inflation and the endless yield watch party, today marks the unofficial start of earnings season when four of the biggest U.S. banks report. This puts corporate news back in the spotlight after a holiday break and could potentially serve as a catalyst to refocus the market on corporate health.

The last month saw Treasury yields steer the boat amid inflation fears and worries that the Fed rate cuts may be nearly over. Banks reporting today include JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs, with Bank of America and Morgan Stanley due tomorrow. Bank earnings could benefit from a rising yield curve that makes lending more profitable, but higher rates can also clamp down on corporate and consumer loan demand.

Potential for a lighter regulatory hand under the new U.S. administration, aiding merger and acquisition activity, is another potential positive scenario for banks, but far from assured. The consensus estimate for JPMorgan Chase earnings per share is $4.11, up from $3.04 a year ago, on revenue of $41.56 billion.

JPMorgan Chase, the biggest U.S. bank, typically releases its earnings first and often sets the tone for the sector. It has generally beaten Wall Street's quarterly earnings expectations, and CEO Jamie Dimon's views on the state of the economy and banking, usually highlighted in the earnings press release, could also be worth checking.

In the markets yesterday, an early PPI-based rally faded, hurt in part by caution ahead of today's data and by company news. This included revenue guidance from pharma giant Eli Lilly below Wall Street's consensus as obesity business sales accelerated less than the company had expected.

Also, Meta Platforms announced it's cutting 5% of staff based on employee performance following a similar move by Microsoft last week. Though staff cuts by Meta over the last few years generally seem to help shares, the two announcements in recent days raised concerns about bottom-line growth for tech and communication services companies as they continue to ramp AI spending.

It was another day of weakness for the two leading sectors of 2024, communication services and infotech, which finished near the bottom of Tuesday's scorecard. NVIDIA and Apple have struggled the last few days, weighing on tech amid worries about new trade tensions with China. Homebuilder stocks got a lift from KB Home and its better-than-expected earnings and guidance, while transportation-oriented stocks also climbed in part on recent strong economic news.

Crude oil backtracked from recent four-month highs, accelerating losses on a CBS News report late in the session of a possible ceasefire in Gaza.

Technically, the tech-heavy Nasdaq 100 remains slightly above its 100-day moving average of 20,434 following a recent test of that support. That moving average has served as support in recent sell-offs. The same is true with the 100-day for the S&P 500, which has been a pivot point the last few days.

Each of the last three sessions saw the S&P 500 dip below the 100-day, now at 5,824, but close above it all three days. This looks positive from a chart standpoint, but the index also has run into selling that quickly exhausts rallies.

The S&P 500 index added 6.69 points or 0.11% to 5,842.91. The Dow Jones Industrial Average gained 221.16 points or 0.52% to 42,518.28. And the Nasdaq Composite fell 43.71 points or 0.23% to 19,044.39. This has been the Schwab Market Update Podcast.

To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow. For important disclosures, see the show notes and schwab.com slash market update podcast.