Wall Street Traders Hold Their Breath Before CPI: Markets Wrap

Wall Street experienced a day of fluctuating stock prices as traders hesitated to make major moves ahead of the crucial inflation data set to be released. The focus was on the consumer price index (CPI) as investors awaited insights that could indicate the future direction of Federal Reserve interest rates.

The S&P 500 index managed to close 0.1% higher, though this was not enough to lift all stocks. Notably, big tech companies faced renewed pressure. According to options trading metrics, the S&P's movements are predicted to be the most volatile on a CPI release day since March 2023, with expectations of a potential 1% swing in either direction.

Chris Brigati from SWBC emphasized the significance of the upcoming CPI report, stating, "This may be the most important inflation reading in recent memory, driving the market's Fed-centric sentiment." An unexpected rise in inflation may suggest no rate cuts in 2025, while weaker data could ease market concerns regarding Fed policies.

On the economic front, a preliminary report indicated that the producer price index (PPI) showed signs of cooling in December, primarily due to reduced food costs and stable services prices. However, mixed results in some components that influence the Fed's preferred inflation measure left the markets teetering ahead of the CPI report.

Krishna Guha from Evercore observed that the benign PPI inputs of previous months are not present this time, meaning that the markets are exposed to fluctuations based on Wednesday's CPI figures.

The S&P 500 closed above its 100-day moving average, highlighting some resilience even after a brief decline. The Nasdaq 100 fell slightly by 0.1%, while the Dow Jones Industrial Average rose by 0.5%. The larger group of major tech stocks, referred to as the "Magnificent Seven," decreased by 1%. The Russell 2000 index, representing smaller companies, saw a gain of 1.1% with homebuilders performing well due to strong earnings reports.

In fixed income, the yield on 10-year Treasuries remained steady at 4.78%. Meanwhile, the U.S. dollar experienced a slight drop after news emerged about the incoming economic team of Donald Trump contemplating gradual tariff hikes to mitigate inflation pressures.

Additionally, oil prices retreated from a five-month high as a ceasefire agreement was tentatively reached between Hamas and Israel, calming recent price surges driven by uncertainties around Russian and Iranian supplies.

The cryptocurrency market also felt the impact of the Fed's policy outlook, with Bitcoin experiencing a drop as concerns mounted regarding its correlation with broader economic policies.

Looking ahead, the CPI is projected to show a 0.2% rise in December, a slight slowdown compared to previous months, with core CPI estimates indicating a year-on-year increase of 3.3%. A recent survey revealed that about 47% of investors anticipate a “risk-off” market response to the upcoming CPI data.

As Wall Street braces for the unofficial earnings season kickoff on Wednesday, major banks including JPMorgan Chase & Co. and Wells Fargo & Co. are expected to report results that could reflect continued gains from trading and investment banking activities, which may counteract declines in net interest income due to challenging loan demand.

Corporate Highlights

• Southwest Airlines Co. has announced a pause in hiring for management and headquarters positions as part of a new cost-cutting strategy following pressure from activist investors.

• Meta Platforms Inc. plans to reduce its workforce by about 5% through performance-based terminations, while still aiming to hire new staff this year.

• Research from the Federal Trade Commission revealed that CVS Health Corp., Cigna Group, and UnitedHealth Group Inc. charged above-average acquisition costs for specialty generic drugs, impacting healthcare costs significantly.

• B. Riley Financial Inc. is facing scrutiny from federal regulators concerning its dealings related to the bankrupt Franchise Group.

• Capital One Financial Corp. is being criticized for misleading customers about its new high-interest savings account offering.

• United Rentals Inc. is expanding through the acquisition of H&E Equipment Services Inc. for $3.4 billion.

• Country Garden Holdings Co., one of China’s major property developers, reported record losses while continuing its debt restructuring efforts.

Key Upcoming Economic Events

• Eurozone industrial production data will be released on Wednesday.

• Major U.S. banks to announce earnings on Wednesday, including Citigroup, Goldman Sachs, and BlackRock.

• The U.S. CPI and Empire manufacturing figures will also be published on Wednesday.

• Federal Reserve members will speak on various economic matters throughout the day.

• Taiwan Semiconductor Manufacturing Company (TSMC) will report its earnings on Thursday.

• The European Central Bank will release minutes from its December policy meeting on Thursday.

• U.S. initial jobless claims and retail sales data will also be reported on Thursday.

• China will release GDP, property prices, and retail sales data on Friday.

• Eurozone CPI stats will be available on Friday as well.

• U.S. housing starts and industrial production data are slated for release on Friday.

stocks, traders, CPI, market, inflation