Wall Street Has Best CPI Day Since At Least 2023: Markets Wrap

As risk-takers resurfaced, the market's “fear gauge” – the VIX – fell the most this year. Goldman Sachs' basket of money-losing tech companies jumped 3.2%, while a group of top-shorted stocks added 3.8%. Bitcoin hovers near $100,000.

The yield on 10-year Treasuries fell 14 basis points to 4.65%. The Bloomberg Dollar Spot Index fell 0.2%. Oil remained higher even after news that Israel and Hamas had agreed to a ceasefire deal, ending the war in Gaza at least temporarily.

At the very least, the latest inflation figures are causing some short coverage, according to Steve Wyett at BOK Financial.

“The market is pleased that potential 'nosebleed' interest rates are – for now – off the table and the bond market will not curtail the huge run we've seen over the past two past years in the equity markets,” said John Kerschner at Janus Henderson Investors.

At Evercore, Krishna Guha says the CPI print reinforces the view that the market has “overtraded” the inflation story since the start of the year on limited new information – and should be a risk.

“It reinforces the underlying case for two Fed cuts, and keeps the possibility of a March cut open,” he noted.

For Ellen Zentner at Morgan Stanley Wealth Management, Wednesday's CPI won't change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates.

“And judging by the initial market reaction, investors seemed to be feeling a sense of relief after a few months of stickier inflation readings.”

Indeed, the data gives the markets a sigh of relief after coming in largely with expectations, Rajeev Sharma told Key Wealth.

“However, accompanying inflation data is not enough good news for the Fed to forget the strength of the jobs market and, in turn, should not be enough for the market to start anticipating more rate cuts for 2025,” said Sharma. noted.

The so-called core consumer price index—which excludes food and energy costs—increased 0.2% in December. That marked the first rate hike in six months. From a year ago, it rose 3.2%. That is still above the Fed's 2% target.

“We still think it will be easy for the Federal Reserve to wait for now and wait for more data and clarity on fiscal policy,” said Allison Boxer at Pacific Investment Management Co. “We expect this to be the message Chairman Jerome Powell aims to communicate at the January meeting.”

Fed's Yellow Book Points to Small to Moderate Growth at Year-End

After months of high prints, the easing in the CPI is helping to restart talk that inflation has resumed – but officials will need to see a series of subdued readings to be convinced. Persistent price pressures have contributed to a deep sell-off in global bond markets and fueled concerns that the Fed eased policy too quickly at the end of last year.

Fed Bank of New York President John Williams expressed confidence that inflation would continue to recede, without offering any suggestions on the timing of additional cuts. His counterpart in Richmond, Tom Barkin, said fresh data showed continued progress on reducing inflation, but that rates should remain restrictive. Austan Goolsbee, president of the Chicago Fed, pointed to the data as supporting his outlook for easing price pressures.

“For the Fed, this is certainly not enough to trigger a cut in January,” said Seema Shah, chief global strategist at Chief Asset Management. “However, if today's print is accompanied by another soft CPI print next month along with weakening payrolls, then a March rate cut may even be back on the table.”

Shah also noted that perhaps the key takeaway is that markets are likely to be “whistled” over the next few data releases as investors look for a narrative they can be comfortable with for more than a few days at a time.

For Solita Marcelli at UBS Global Wealth Management, Fed cuts are still on the table as inflation should moderate over the coming months.

“The strength of the economy remains a supporting factor for corporate earnings growth at the current level of output,” he noted. “While volatility could make it an uncomfortable ride before the S&P 500 reaches our year-end target of 6,600, we expect the equity bull market to continue and maintain our 'attractive' rating on US equities.”

At Nationwide, Mark Hackett says the encouraging inflation data “brings bulls off the sidelines.”

“Equity investors have become increasingly sensitive to movements in the bond market, with an intense focus on rates, inflation, and Fed policy,” Hackett said. “Focus will now shift to earnings, which have been at the fore in recent quarters, as we head into earnings season with higher expectations. Given the weakness over the past month, the chances of a positive surprise this earnings season have improved.”

Corporate Highlights:

• Goldman Sachs Group Inc. cruised. past estimates as its equity traders secured their best year ever.

• JPMorgan Chase & Co. traders scored their fourth biggest quarter on record, boosted by volatility in the US elections in November.

• Citigroup Inc. said. that it will buy back $20 billion worth of its stock in the coming years – freeing up billions in excess capital the bank had been holding on hand to meet a key shareholder requirement.

• Wells Fargo & Co.'s expenses fell. 12% in the fourth quarter as CEO Charlie Scharf continued to cut staff as part of broader efforts to cut costs and remake the bank. The company's shares rose.

• BlackRock Inc. attracted a record annual $641 billion in client cash, underscoring the firm's global reach across public and, increasingly, private assets as it integrates multibillion-dollar acquisitions and reshapes its leadership.

• Bank of New York Mellon Corp.'s fourth quarter profit was topped analysts' expectations after higher interest rates for a longer period boosted profits.

• Southwest Airlines Co was sued by the US Department of Transportation for allegedly violating rules that require airlines to set and meet realistic flight schedules.

• The merger of CBS owner Paramount Global with film and television producer Skydance Media should be reviewed by federal authorities because of the involvement of China's Tencent Holdings Ltd., which was recently added to the US military blacklist, a key member of Congress said.

• NetApp Inc. has agreed to sell a portfolio of cloud software assets it acquired in recent years to Thoma Bravo-backed Flexera.

• Airbus SE CEO Guillaume Faury said the engine problems affecting many of its narrow-body aircraft will continue into the first half of the year and possibly beyond, complicating the outlook for European aviators as it goes. address ongoing supply chain constraints.

• Pfizer Inc. sold around 700 million shares in Haleon Plc, further increasing its stake in toothpaste maker Sensodyne.

Key events this week:

• ECB releases account of December policy meeting, Thursday

• Bank of America, Morgan Stanley earnings, Thursday

• US initial jobless claims, retail sales, import prices, Thursday

• China GDP, property prices, retail sales, industrial production, Friday

• Eurozone CPI, Friday

• US housing starts, industrial production, Friday

Some of the main movements in markets:

Stocks

• The S&P 500 rose 1.8% as of 4 pm New York time

• The Nasdaq 100 rose 2.3%

• The Dow Jones Industrial Average rose 1.7%

• MSCI World Index rose 1.7%

• The Bloomberg Magnificent 7 Total Return Index rose 3.7%

• Russell 2000 Index rose 2%

• KBW Bank Index rose 4.1%

Currency

• Bloomberg Dollar Spot Index fell 0.2%

• The euro fell 0.1% to $1.0296

• The British pound rose 0.2% to $1.2242

• The Japanese yen rose 1% to 156.45 per dollar

Crypto currency

• Bitcoin rose 3.3% to $99,583.06

• Ether rose 6.8% to $3,434.38

Bonds

• The yield on 10-year Treasuries fell 14 basis points to 4.65%

• Germany's 10-year yield fell nine basis points to 2.56%

• Britain's 10-year yield fell 16 basis points to 4.73%

Goods

• West Texas Intermediate crude rose 3.9% to $80.53 a barrel

• Spot gold rose 0.7% to $2,696.67 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Lu Wang, Natalia Kniazhevich, Sujata Rao, Margaryta Kirakosian, Julien Ponthus and Winnie Hsu.

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