Wall Street Takes a Breath After Recent Gains, Focus Shifts to Earnings

By Johann M Cherian and Sukriti Gupta

(Reuters) - Wall Street's main indexes paused on Thursday following a strong rally in the previous session, which was boosted by impressive earnings reports from major banks. Investors are now focused on economic data to better understand the potential for interest rate cuts this year.

As of 11:59 a.m. ET, the Dow Jones Industrial Average rose 26.22 points, or 0.06%, to 43,247.77, the S&P 500 gained 5.34 points, or 0.09%, to 5,955.25, while the Nasdaq Composite fell 53.30 points, or 0.27%, to 19,457.93.

Morgan Stanley saw an increase of 3.3% after reporting higher earnings for the fourth quarter, driven by significant deal activity. In contrast, Bank of America declined by 1.2% but forecasted increased interest income for 2025.

Investors paid close attention to the remarks from Federal Reserve Governor Christopher Waller, who suggested that three to four interest rate cuts could still be possible this year if economic conditions continue to weaken.

The yield on the 10-year Treasury note eased to 4.617%, and futures contracts were reflecting an expectation of about 43.5 basis points in rate cuts for 2025, up from approximately 37 basis points late on Wednesday, according to data from LSEG.

Phil Blancato, CEO of Ladenburg Thalmann Asset Management, noted, "Anyone trying to predict where we stand with the uncertainties surrounding the new administration and potential tariff implications may be mistaken. Currently, we must acknowledge that inflation is proving to be more persistent than we anticipated, compounded by political uncertainties about the future."

President-elect Donald Trump is set to take office on Monday.

Among the S&P 500 sectors, seven out of eleven showed gains, with utilities and real estate stocks climbing over 1.5% each. The S&P 500's equally weighted index increased by 0.7%, while technology giants Apple and Nvidia had a negative impact on the Nasdaq.

Data released showed December retail sales grew less than expected, while another report indicated that jobless claims rose more than anticipated last week.

On Wednesday, Wall Street's major indexes experienced their largest one-day increase since November 6, spurred by reports that underlying inflation was easing and strong earnings from three of the largest banks in the country.

In January, the S&P 500 banks index and the regional banks index have outperformed the broader market. Investor sentiment regarding a positive environment for banking under Trump was echoed by bank CEOs on Wednesday.

As of Wednesday, 82.1% of the 28 companies in the S&P 500 that have reported fourth-quarter earnings exceeded analysts' expectations, according to data compiled by LSEG.

However, UnitedHealth faced a setback, losing 4.5% after its fourth-quarter revenue fell short of forecasts. In contrast, shares of Taiwan Semiconductor Manufacturing Co. surged 4.8% following the company’s announcement of a record profit for the quarter.

During a Senate confirmation hearing, Treasury nominee Scott Bessent expressed support for continuing Trump's 2017 tax cuts.

Overall, advancing stocks outnumbered decliners by a ratio of 1.81-to-1 on the NYSE and 1.08-to-1 on the Nasdaq. The S&P 500 recorded 19 new 52-week highs and nine new lows, while the Nasdaq Composite saw 50 new highs and 84 new lows.

WallStreet, Earnings, Investors