Earnings Kick Off, Inflation Still Hot, The Fed Hammers Home its Message (January 14 Market Recap)
January 14 Market Recap – Earnings good (but markets hate them anyway), inflation bad, when the Fed tells you who they are, believe them.
Dow 35,911 or (320) or (0.88%)
Nasdaq 14,893 or (42) or (0.28%)
S&P 4,677 (15) or (0.32%)
U.S. 10 Year Treasury Yield 1.77%, +1.8 bp or +1.0%
Q4 Earnings Season Kicks Off
Delta Air (DAL) and Taiwan Semiconductor (TSM) were the prologue to the Q4 earnings season (both with great reports, see below) that began on Friday with the money center banks reporting. While all of JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C) and BlackRock (BLK) had impressive quarters, investors found something to hate with each report. JPM moved $1.8 billion back onto their balance sheet from their bad loan reserves, without which they would have missed their numbers, C’s loan balance fell year over year, and BLK missed on the revenue line despite increasing assets under management by 15% year over year. The only report that investors cheered was that of WFC. Mind you, many of these names had rallied hard into their respective earnings report, so this may have just been a case of investors “selling the news.”
Inflation Still Running Hot but Cresting?
The CPI and Core CPI numbers released on Wednesday were roughly in line with expectations but were still historically high. However, wholesale prices, as measured by the Producer Price Index (PPI), were up only 0.2% in December, below the 0.4% expected by economists. The year-over-year increase in PPI also slowed in growth despite a still very elevated level. Will this slowing growth find its way into the CPI? The Fed is certainly not going to wait around to find out (see next).
The Fed Speaks (Listen to them)
No fewer than four Fed luminaries spoke publicly this week including Chair Jerome Powell and Vice Chair Leal Brainard and they all shared the same message; quantitative easing is over, the Fed balance sheet will be reduced, and interest rates will be raised. The specter of a decreasing money supply and increasing interest rates cast a pall on the market after their comments and the release of the inflation data on Wednesday.
Infections, while tailing off, are still growing at an alarming rate. Deaths, unlike last week, have begun to rise while still lagging the growth rate of infections and hospitalizations. The CDC finally admitted that cloth masks are not as effective as N95 or KN95 masks. The Biden administration announced that free, at-home Covid tests will be able to be ordered this Wednesday from CovidTests.gov. The U.S. Supreme Court struck down the administration’s vaccine mandates for employers with more than 100 employees but allowed the mandate to stand in the case of facilities that participate in Medicare and Medicaid programs.
- Infections – 806,157, +113%
- Hospitalizations – 151,329, +73%
- Deaths – 1,928, +55%
Markets are closed Monday in observance of Martin Luther King Jr. Day. The balance of the week will see the tsunami of Q4 earnings reports begin. Economic data is light, but the Empire State and Philly Fed numbers will give us some insight as to the manufacturing sector and an update on the supply chain situation.
Market Data Points Next Week
- Monday – Market Closed in Observance of Martin Luther King Jr. Day.
- Tuesday – Empire State Manufacturing. Earnings: Goldman Sachs (GS), Charles Schwab (SCHW).
- Wednesday – Philly Fed. Earnings: Bank of America (BAC), United Airlines (UAL).
- Thursday – Initial Jobless Claims. Earnings: American Air (AAL), Netflix (NFLX)
- Friday – Leading Economic Indicators.
January 14 Market Recap Trading…
Monday– Dow (162) to 36,068, Nasdaq +7 to 14,942, S&P (7) to 4,670.
- Stocks were continuing their downward trend as the 10-year yield touched 1.80% but all three indices rallied as the benchmark yield fell back and was roughly unchanged by market close.
- Seven of the of the eleven S&P sectors traded down today led by Industrials, Materials, and Utilities. Financials and Healthcare were the two best performers, each up over 1%.
- The 10-year U.S. Treasury yield rose to 1.80% before closing virtually unchanged at 1.773%
Tuesday – Dow +183 to 36,252, Nasdaq +211 to 15,153, S&P +43 to 4,713.
- The continued decline in treasury yields helped all three indices rally higher with broad participation.
- Eight of eleven S&P sectors traded higher today led by Energy, Tech, and Materials.
- Cleveland Fed President Mester said she sees three ¼ rate hikes this year starting in March.
- Kansas City Fed President George endorsed the idea of the Fed reducing its $8.5 trillion balance sheet faster than it has in the past.
- Fed Chair Jerome Powell, expressed confidence that the Fed could raise interest rates without damaging the labor market in testimony to the Senate Banking Committee,
- The 10-year U.S. Treasury yield traded down 3.1 bp to 1.742%.
Wednesday – Dow +38 to 36,290, Nasdaq +35 to 15,188, S&P +13 to 4,726 .
- Markets shrugged off a red-hot inflation report and rallied higher.
- Ten of the eleven S&P sectors traded higher today led by Materials, Consumer Discretionary and Tech. Healthcare was the lone sector in the red.
- The 10-year U.S. Treasury yield continued its slide down 0.5 bp to 1.737%.
- December Core CPI increased 5.5% and month over month increased 0.6%, the former in line with expectations, the later a touch higher (0.5% expected).
Thursday – Dow (177) to 36,113, Nasdaq (381) to 14,807, S&P (67) to 4,659.
- All three indices closed in the red today as big tech led the market lower.
- Jobless claims missed expectations at 230,000 vs 200,000 expected and last week’s unrevised print of 207,000 claims.
- Earnings: Delta Air (DAL) beat their estimates and traded up 2%, Taiwan Semiconductor (TSM) reported record Q4 earnings and will spend upwards of $40 billion to increase capacity in response to the semiconductor shortages.
- The 10-year U.S. Treasury yield fell 3.9 bp to 1.698%.
Friday – Dow (201) to 35,911, Nasdaq +87 to 14,893, S&P +4 to 4,662.
- The banks reported, the market did not like what was said and the resulting sell off sank the Dow while the Nasdaq and S&P closed higher and flat, respectively.
- Bank Earnings: JPMorgan (JPM) beat top and bottom-line estimates and moved $1.8 billion in bad loan reserves back onto their balance sheet. The stock traded down 6.2%. Wells Fargo (WFC) beat top and bottom-line expectations and traded up 3.7%. Citigroup (C) beat top and bottom-line estimates, but their loan balance fell 1% year over year and the stock traded down 1.3%. BlackRock (BLK) missed on the top line, beat on the bottom line, increased assets under management by 15% year over year and the stock fell 2.19%.
- Only four of eleven S&P sectors traded higher today led by Energy, Tech and Communication Services. The worst performing sectors were Real Estate and Financials.
- The 10-year U.S. Treasury yield traded up another 9 bp to 1.788%.
- Starting Wednesday free Covid tests will be able to be ordered at CovidTests.gov.
P.S. If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.