Key Takeaways
- Stocks Show Mixed Moves Amid Muted Inflation And Earnings Results
- Major Banks Report Strong Earnings, Boosting Financial Sector Outlook
- AI Chip Sector Faces Regulatory Headwinds And Nvidia Correction
Stocks were mixed on Tuesday with the S&P 500 up just 0.1% while the Nasdaq Composite was down 0.2%. Both the Russell 2000 and Dow Jones Industrial Average were up 1% and 0.5%, respectively. The muted moves came following the release of the Producer Price Index (PPI), which showed slower than expected increases in prices.
Tuesday’s Core PPI was forecast to show an increase of 0.4% on a month-to-month basis, but the actual increase was just 0.2%. That number offered a preview of today’s Consumer Price Index (CPI), which was expected to show core prices increased month-over-month by 0.3% and a yearly increase of 3.3%, according to Bloomberg. The actual numbers were slightly below those expectations. Month-over-month was up 0.2% while year-over-year, prices were higher by 3.2%.
Turning to earnings, major banks are kicking things off this morning. So far, we’ve heard from JP Morgan who beat on both the top and bottom lines, sending that stock higher by 2% in premarket. Wells Fargo also beat on earnings. One standout metric was their investment banking fees which grew by 59%. Wells in not typically the first name that comes to mind when discussing investment banking, so this may be an area of growth to keep an eye on. But net interest income is the standout metric here for both banks. JP Morgan and Wells Fargo forecast strong growth for net interest income in 2025.
Goldman Sachs also released their earnings in premarket. The company crushed expectations across the board. Goldman said it expected investment banking and trading fees to grow double digits in 2025. Lastly, Citigroup is out with earnings, issuing beats on the top and bottom lines. All four banking stocks are trading higher in premarket activity.
A few other stocks in the news include Meta, Alphabet and Eli Lilly. Meta announced it will more aggressively manage out underperforming workers and as a result the company will cut 5% of its workforce in the U.S. As the job market is cooling, we’re seeing the power pendulum swing back towards companies. This comes after a red-hot labor market was giving job seekers a significant advantage following Covid. Alphabet is being investigated by U.K antitrust regulators over how Google search results may affect competition. Lastly, Eli Lilly cut its fourth-quarter forecast citing weaker than expected growth for the company’s insulin and weight loss drugs. However, the company did say they expect strong growth for their weight loss drugs Mounjaro and Zepbound in 2025.
Turning to the chip sector, the Biden Administration announced it plans more regulations for advanced chips being produced by Taiwan Semiconductor Manufacturing and others from being exported to China. Another stock in the AI chip sector that’s making news is Nvidia. Shares of that stock have fallen for the past five trading days and are down 12% from their highs, putting the stock in a correction. This is particularly noteworthy because Nvidia has been at the forefront of the stock market rally over the past couple years. Therefore, it will be interesting to see if this is simply some short-term profit taking, the beginning of a longer-term downturn for the overall market, or a changing of the guard and opportunity for another sector to lead the market.
A few more odds and ends. After hitting a low of just over $89 thousand on Monday, bitcoin is trading higher and looks set to make another run at $100 thousand. Oil prices remain within striking distance of $80 per barrel. As I’ve previously mentioned, so long as oil remains below $80, its impact on the economy is relatively muted. However, a break above $80 may prompt fears of a return of inflation. Finally, Forbes is saying the cost from the California fires may reach as high as $150 billion. This is simply a tragic story and one that, unfortunately, continues to unfold.
For today, the story is a combination of earnings and muted inflation. The outlook for the banking sector, especially net interest income, is being buoyed by forecasts for fewer interest rates cuts by the Fed. Elevated rates mean more interest income. The outlook for rates should come as no surprise to regular readers of my column as I’ve been discussing it ad nauseum. Combine that with a weaker than expected CPI and you get stocks up nearly 2% in premarket trading. I would caution readers that this is just the very beginning of earnings season and there is a long way to go still. However, the start is looking pretty good and may be exactly what this market needs. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.