Big Day: CPI Lands, Big Banks Report, Fed Heads on the Loose
Also, Meta's axe swings for supposed slackers and I chart my investing favorites: Palantir and SoFi.
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Before the opening bells at 11 Wall Street and Times Square rattle that cranium of yours, we'll be treated to two big events. The Bureau of Labor Statistics will release the December consumer price index. We'll also get a bevy of quarterly financial results released by some major financial institutions. And then ... expect our (less than) favorite central bankers to be out in force later today.
The December CPI will follow the surprisingly cooler-than-expected December producer prices that were released on Tuesday. Alongside those numbers, we'll hear from money management giant BlackRock BLK as well as large money-center banks JP Morgan JPM, Well Fargo WFC, Citigroup C and investment banker Goldman Sachs GS. While the banks don't necessarily dictate how "earnings season" will go, they do dictate how the season starts out and that can impact investor sentiment at a time where that mood is starting to drag.
The Financial Sector SPDR ETF XLF is relatively flat (-0.17%) year to date ahead of "the season" but the KBW Bank Index is up an impressive 1.68% so far in 2025. According to FactSet, the financials as a sector are seen easily leading the other sectors in the fourth-quarter earnings (profitability) growth this season at +39.5% (y/y) vs expectations for earnings growth across the S&P 500 of 11.7%. Revenue growth for the Financials is seen at +5.7% versus 4.7% for the S&P 500. The sector is currently valued at 16.5-times 12-month forward-looking earnings, which is well above the five-year and ten-year averages for the group of 13.9-times and 13.4-times but still lags the S&P 500 at 21.5-times.
My Banking Focus
Readers likely already know that my key banking long position has been Wells Fargo. Of course, I will be watching and listening with interest on how well Wells performs in net interest margin / income as that is the bread and butter of any traditional banker. I will also be on the lookout for signs that the most traditional of the large banks is furthering its efforts under CEO Charlie Scharf (who is the main reason I am in the name) to diversify its revenue streams. The key stream here would see this bank become a larger competitor in the investment banking space.
All that said, the thesis behind my faith in this bank and in Scharf is what I believe is his ability to get the Federal Reserve to remove the $1.95 trillion asset cap (this year?) that had been imposed in 2018 in response to the scandals that had severely damaged the firm's reputation under different management. Scharf took the big job at Wells Fargo in September of 2019 after having already been Chief Executive at both Visa V and Bank of New York Mellon BK. Over the past couple of years, Wells Fargo has taken several important steps to show regulators that they were serious about cleaning up the firm. Getting this cap removed is how the bank grows its balance sheet and investors will be looking for an update on how close the bank is to taking that next step this morning.
Marketplace
Equity markets largely ended Tuesday in the green, after what was a fairly volatile regular session. While the S&P 500 gained just 0.11% for the day and the Nasdaq Composite gave up 0.23%, all of the small to midcap equity indices gained at least 1.13% on Tuesday as the Dow Transports popped for a one-day gain of 1.3%. Of the eleven S&P sector SPDR ETFs, eight closed out the day in the green, as five of those funds gained more than 1%. The day's winners were the Utilities XLU, Materials XLB as the U.S. dollar took a break, and the above-mentioned financials. Health Care XLV led the losers for the day, giving up more than 1%.
While there was some life in U.S. equity markets, Treasury yields continued to trade sideways as they have since reaching these levels last Friday in response to the BLS December employment report. On Tuesday, the U.S. Ten-Year Note went out paying 4.8%, as the Two-Year Note yielded 4.37% at quitting time. Both of those yields are down (prices up) slightly overnight but are still trading within their recent ranges.
Perhaps one item that kept the bond market in check on a day that producer prices printed cooler than expected, at least on a monthly basis, may have been the fact that the federal budget surprised to the negative side on for December on Tuesday, leaving the fiscal first (calendar fourth) quarter federal deficit a jaw-dropping 39.4% worse off than it was just one year earlier. Interest on the national debt for the first three months of the government's fiscal year alone is up 7% year over year. At this point more is spent by the US government on interest than on any single category other than Social Security, defense and Health Care.
Needless to say, that while equity markets shaded decisively green in terms of breadth on Tuesday, that aggregate trading volume was notably lower on a day over day basis across the listing of both the NYSE and the Nasdaq.
Will CPI Be the Market's Tipping Point?
TheStreet Pro's James "Rev Shark" DePorre asked that question on Tuesday evening, and it really is the question of the day/week.
The Metaverse Axe Is Real ...
Meta Platforms META announced on Tuesday plans to fire 5% of the firm's staff. These are not traditional layoffs meant to control or reduce overhead costs. This will be a mass termination that will only impact under-performers, and these positions will be refilled through new hires. Those being let go will be notified by Feb. 10. How interesting is that?
How difficult will it be for those let go, to find new jobs in high-tech elsewhere, as other companies that might be looking to add staff will know that so and so was let go as an "under performer"?
Then, again, what a great way to light a fire under the tailbones of the 95% of employees that are not let go, especially the ones that have not been singled out as top performers. I like the idea, as I have never enjoyed working with "dead wood" myself, but I also have to think that, despite the December jobs numbers, in tight labor markets, skilled individuals (even slackers) are not let go with a confidence that they can be so easily replaced.
Trading Notes
Palantir Technologies PLTR regained contact with its 50-day simple moving average on Tuesday. Indicators are still bearish. Does this level now become resistance? How about I let you know in a couple of hours. Yes, I have added small to this long position this week.
SoFi Technologies SOFI has also regained contact with its 50-day SMA. Has our mini head-and-shoulders pattern of bearish reversal morphed into a mini-double-bottom pattern of bullish reversal?
Again, I'll let you know. Again, I have added to this long position this week.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.99%.
07:00 - MBA Mortgage Applications (Weekly): Last -3.7% w/w.
08:30 - Empire State Manufacturing Index (Jan): Expecting -1.1, Last +0.2.
08:30 - CPI (Dec): Expecting 0.4% m/m, Last 0.3% m/m.
08:30 - Core CPI (Dec): Expecting 0.3% m/m, Last 0.3% m/m.
08:30 - CPI (Dec): Expecting 2.9% y/y, Last 2.7% y/y.
08:30 - Core CPI (Dec): Expecting 3.3% y/y, Last 3.3% y/y.
10:30 - Oil Inventories (Weekly): Last -959K.
10:30 - Gasoline Stocks (Weekly): Last +6.33M.
The Fed (All Times Eastern)
09:20 - Speaker: Richmond Fed Pres. Tom Barkin.
10:00 - Speaker: Minneapolis Fed Pres. Neel Kashkari.
11:00 - Speaker: New York Fed Pres. John Williams.
12:00 p.m. - Speaker: Chicago Fed Pres. Austan Goolsbee.
2:00 - Beige Book.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BLK (11.33), BK (1.56), C (1.24), GS (8.28), JPM (4.03), WFC (1.34)
After the Close: SNV (1.15)
At the time of publication, Guilfoyle was long WFC, PLTR, SOFI equity.
