Schwab Market Update

Published as of: January 15, 2025, 9:24 a.m. ET

(Wednesday market open) U.S. December consumer price growth of 0.4% topped expectations, but the core Consumer Price Index (CPI) reading of 0.2% came in on target and fell from a month earlier, sending Treasury yields sharply lower and boosting stocks in early trading. Core excludes food and energy. "CPI was a step in the right direction, but we'll need to see more reports like this for evidence that the disinflationary trend has resumed," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research.

Before CPI, solid bank earnings dominated the early headlines and gave Wall Street a lift as reporting season kicked off with results from JPMorgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC). Most readings topped analysts' estimates, driven partly by strength in trading and investment banking businesses despite drops in the important net interest income category that often fuels profit growth. Profits at JPMorgan rose 50% from a year earlier, lifted in part by a sharp rise in investment banking fees amid a more active deal-making climate as mergers and acquisitions (M&A) began to wake from a long slumber. Other banks cited increased activity on the initial public offering front. All this could bode well for the financial sector today, though one quarter isn't a trend.

Technically, the 100-day moving average for the S&P 500 index^® (SPX) remains a possible pivot point that might help determine direction. Each of the last three sessions saw the SPX dip below the 100-day—now at 5,825—and then close above. This looks positive from a chart perspective, but the index also has run into selling that quickly exhausts rallies. With stocks up early today, it could be interesting to see if buying interest flags or continues. The tech-heavy Nasdaq-100^® (NDX) remains slightly above its 100-day moving average of 20,435 following a recent test of that support as major tech stocks including Apple (AAPL) and Nvidia (NVDA) have struggled amid trade tensions with China and tariff fears. Both rose in pre-market action.

1. A closer look at CPI: Analysts had expected 0.3% and 0.2% headline and core CPI growth, and the actual figures were 0.4% and 0.2%. Closely watched annual core CPI rose 3.2%, below the 3.3% November level and a rare sign of progress on the inflation front. However, headline inflation climbed 2.9% for the year, up from 2.7% in November. Both figures remain well above the Fed's target of 2%. The November monthly readings were both 0.3%. "The 0.2% monthly increase in core CPI was lower than expected and was its lowest reading since last July, but the year-over-year change still inched up to 3.2%," Schwab's Martin said. "Supercore CPI, a reading the Fed has been focusing on lately, also rose by just 0.2% for the month, also the lowest reading since July." Supercore is core services minus housing. The CME FedWatch tool still prices in 97% odds that policy makers will stand pat on rates when the Fed meets later this month. The market expects the first rate cut of 2025 to take place in the second half of the year.
2. Earnings yield in focus as season begins: The last stretch featured an almost obsessive focus on Treasury yields, but another type of yield could be in the front row now that earnings are underway. Earnings yield, which is the inverse of the price-to-earnings (P/E) multiple and helps track potential return on investment, is currently near 3.4% for the S&P 500 index (SPX). That puts it well below short-term Treasury yields that trade around 4.3%, meaning the market implies investors could get more bang for their buck in Treasuries than in stocks. While FactSet expects fourth quarter S&P 500 earnings growth of 11.7% and 2025 earnings growth of 14.8%, both very solid figures, the current price level of the index pretty much builds in most of that good news. That means earnings disappointments could perhaps have a more dramatic impact on the overall market, and investors might be tempted to park money in Treasuries.
3. Jobs and inflation: Tremors from last week's hot jobs report continue to affect bond yields, but there may be some overthinking in terms of inflation impact. "There isn't much of an inflationary fingerprint in the December jobs report, given robust hiring and cooler wage growth," said Kevin Gordon, director, senior investment strategist at Schwab. "Even though it's human nature to extrapolate the jobs data and expect the Fed to be on a prolonged pause, investors shouldn't have high conviction either way at this point, mostly because we won't get any policy meat on the bones until January 20" when there could be more clarity on Trump's tariff and immigration plans.

• Goldman Sachs: Shares jumped 2.4% in pre-market trading after earnings per share of $11.95 came in well above the FactSet consensus of $8.21. Revenue rose 23% year over year to $13.87 billion, above the $12.36 billion average estimate. Global banking and markets led the way, driven by record net revenue in equities trading and a climb in investment banking fees. In its release, Goldman cited an increase in completed M&A transactions.
• JPMorgan Chase: Shares climbed 0.6% before the open as the company reported earnings of $4.81 per share, well above the FactSet consensus of $4.09. Revenue rose 11% year over year to $42.8 billion, above the consensus of $41.9 billion. "Each line of business posted solid results," CEO Jamie Dimon said in the press release. "In the commercial and investment bank, clients were active, with investment banking fees up 49%, and market revenue rose 21%."
• Wells Fargo: The stock was up 3.1% in pre-market trading after the company's earnings per share of $1.43 came in above the FactSet consensus of $1.35. However, revenue fell 0.5% year over year to $20.38 billion, below the consensus of $20.58 billion. Net interest income, a measure of the profit banks make on loans, fell but noninterest income rose 11% on improved results from venture capital investments and increased fees in the wealth and investment management business. Guidance for better-than-expected 2025 net interest income gains of 1% to 3% helped spark the stock.
• Citigroup: Shares climbed 3.5% after the company reported earnings per share of $1.34, beating the consensus of $1.22. Quarterly revenue of $19.6 billion was up 12% from a year earlier and narrowly edged above the $19.49 billion Wall Street had expected. In its release, the bank cited "record years in services, wealth, and U.S. personal banking." Net income came in positive at $2.9 billion, reversing a net loss a year earlier in the same quarter.
• BlackRock (BLK) added 3.6% ahead of the open after the company reported earnings that included 23% quarterly revenue growth and adjusted net income growth from a year earlier. Assets climbed to nearly $11.6 trillion by the end of the year. This was partly driven by flows into its bitcoin exchange-traded fund (ETF).

2025 outlook for China: Volatility early this year could mark the start of a wild ride for investors in the Chinese market, noted Jeffrey Kleintop, chief global investment strategist at Schwab, in his latest look at the world's second largest economy. Recent signs of improvement there include stabilization in home prices and gains in purchasing managers' index surveys for December.

The Nasdaq Bank index (BANK—candlesticks) rose yesterday and has gained roughly 20% over the last year, in line with the S&P 500 index. However, bank stocks have generally behaved weakly at times of rising 10-year Treasury note yields (TNX:CGI-purple line), and that's been the case over the last month.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

January 16: December retail sales and expected earnings from Morgan Stanley (MS), UnitedHealth (UNH), Taiwan Semiconductor (TSM), and Bank of America (BAC).
January 17: December housing starts and building permits.
January 20: Markets closed for observance of birthday of Dr. Martin Luther King, Jr. 
January 21: Earnings expected from 3M (MMM), D.R. Horton (DHI), Fifth Third (FITB), Netflix (NFLX), Capital One (COF), United Airlines (UAL).
January 22: Leading indicators, and expected earnings from Johnson & Johnson (JNJ) and Procter & Gamble (PG).