(Bloomberg) — Stocks bounced around all day, with traders unwilling to make any significant bets as they waited for key inflation data for clues about the path of Federal Reserve interest rates.
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After several twists and turns in the run-up to the consumer price index, the S&P 500 finished 0.1% higher. While most stocks advanced, the big tech sector came under renewed pressure. Options traders are gearing up for the U.S. stock benchmark’s busiest CPI day since March 2023. The index is expected to move 1% in either direction on Jan. 15 based on the cost of at-the-money puts and calls, according to Stuart Kaiser at Citigroup Inc.
“All eyes are now on Wednesday’s CPI report, which may be the most important inflation reading in recent memory, as it will fuel Fed-obsessed sentiment in the market,” said SWBC’s Chris Brigati. “A strong inflation rate adds to the idea of no cuts in 2025 and possibly even a rate hike, while weak inflation data could help calm Fed fears in the market.”
Data on Tuesday showed the producer price index unexpectedly cooled in December, helped by a drop in food costs and flat services prices. Still, several components that contribute to the Fed’s preferred measure of inflation – its measure of personal consumption expenditure – were actually mixed in December.
“This means the Fed and markets will not benefit from particularly favorable PPI inputs into PCE, as was the case in November,” Evercore’s Krishna Guha said. “In the very short term, this leaves markets exposed (in both directions) to Wednesday’s CPI report.”
The S&P 500 closed above its 100-day moving average after briefly falling below it. The Nasdaq 100 fell 0.1%. The Dow Jones Industrial Average rose 0.5%. A gauge for the “Magnificent Seven” megacaps fell 1%. The Russell 2000 of small companies gained 1.1%. Homebuilders rose after KB Home’s profit decline. Eli Lilly & Co. fell by 6.6% due to disappointing sales.
The yield on 10-year government bonds was little changed at 4.78%. The dollar fell after Bloomberg News reported that Donald Trump’s new economic team is considering gradual increases in rates to help prevent a spike in inflation.
Oil fell from a five-month high as Hamas and Israel agreed to a tentative ceasefire, cooling a rally fueled by risks to Russian and Iranian supplies.
Underlying US inflation likely cooled only slightly at the end of 2024 amid a resilient labor market and a steadfast economy, supporting the Fed’s slow approach to further rate cuts.
The consumer price index excluding food and energy rose 0.2% in December after four straight months of 0.3% increases, according to the median projection in a Bloomberg survey of economists. The core CPI, a better snapshot of underlying inflation, is expected to have risen 3.3% from a year earlier, matching the previous three months’ figures.
A survey by 22V Research found that 47% of investors expect the market reaction to the CPI to be ‘risk-off’, 29% think ‘risk-on’ and 24% say ‘mixed/negligible’. The survey also found that 53% of respondents believe that financial conditions need to be tightened.
“Higher interest rates or some tightening of financial conditions appear necessary for the US economy to reach “macro equilibrium” (core PCE closer to 2% and full employment), said Dennis DeBusschere at 22V.
Wall Street is also gearing up for the unofficial start of earnings season, with major banks’ results due on tape on Wednesday.
Lenders, including JPMorgan Chase & Co. and Wells Fargo & Co., are expected to show continued gains from commercial and investment banking, which has helped offset declines in net interest income due to higher deposits and sluggish loan demand.
“When it comes to big banks’ profits, net interest income is the most important data point to watch,” SWBC’s Brigati said. “If banks have been able to benefit from lending at rates lower than their loan portfolio, this is a constructive sign for the year ahead.”
Southwest Airlines Co. is pausing management hiring, headquarters jobs and remote workers in a new round of cost-cutting after a battle with activist shareholder Elliott Investment Management.
Meta Platforms Inc. is cutting about 5% of its workforce through performance-based layoffs and plans to hire new people to fill their positions this year, according to an internal memo sent to all employees.
Units of CVS Health Corp., Cigna Group and UnitedHealth Group Inc. charged significantly more than the national average acquisition cost for dozens of specialty generic drugs, generating more than $7.3 billion in “excess” revenue over six years, according to the Federal Trade Commission. in a report on drug intermediaries.
B.Riley Financial Inc. received more requests for information from federal regulators about his dealings with the now-bankrupt Franchise Group, as well as a personal loan for co-founder and chairman Bryant Riley.
Capital One Financial Corp. misled customers when it rolled out a new savings account with a higher interest rate that was not also applied to existing savings accounts, the Consumer Financial Protection Bureau said Tuesday in a lawsuit against the bank.
United Rentals Inc. agreed to acquire H&E Equipment Services Inc. for $3.4 billion in cash, acquiring a fleet of equipment to serve the construction and industrial markets.
Country Garden Holdings Co. suffered another record loss in 2023 as one of China’s largest developers continued its lengthy restructuring process after defaulting on its debts.
Main events this week:
Industrial production in the eurozone, Wednesday
Citigroup, JPMorgan, Goldman Sachs, Bank of New York Mellon, Wells Fargo and BlackRock earnings, Wednesday
US CPI, Empire Production, Wednesday
The Fed’s John Williams, Tom Barkin, Austan Goolsbee and Neel Kashkari will speak Wednesday
TSMC earnings, Thursday
ECB will publish the report of the December policy meeting on Thursday
Bank of America, Morgan Stanley earnings, Thursday
US initial unemployment claims, retail sales, import prices, Thursday
China’s GDP, real estate prices, retail sales, industrial production, Friday
Eurozone CPI, Friday
Start of the US housing market, industrial production, Friday