Stocks Surge as Bond Yields Fall Following Positive Economic Data
The S&P 500 Index ($SPX) (SPY) is up +1.66%, the Dow Jones Industrials Index ($DOWI) (DIA) increases by +1.53%, and the Nasdaq 100 Index ($IUXX) (QQQ) rises +2.13%. Additionally, March E-mini S&P futures (ESH25) are up +1.65%, and March E-mini Nasdaq futures (NQH25) see an increase of +2.09%.
Market Rally Driven by Favorable Economic Indicators
Today, stocks are on a sharp upward trend. The S&P 500 has reached a one-week high, while the Dow Jones Industrials has climbed to its highest point in two and a half weeks. This surge follows an accommodating consumer price report for December, which revealed a decline in core inflation. The slowdown in consumer prices has fueled speculation that the Federal Reserve might cut interest rates later this year. Moreover, strong quarterly earnings from major U.S. banks, including Citigroup, JPMorgan Chase, Blackrock, Goldman Sachs, Bank of New York Mellon, and Wells Fargo, added to the market’s positive momentum.
Significant Increase in Mortgage Applications
The U.S. Mortgage Bankers Association (MBA) reported a rise of +33.3% in mortgage applications for the week ending January 10. This included a +26.9% jump in purchase mortgage applications and a +43.5% increase in refinancing applications. The average rate for 30-year fixed mortgages increased by 10 basis points to 7.09%, marking an eight-month high.
Consumer Prices and Manufacturing Data Released
The consumer price index (CPI) for the U.S. rose to +2.9% year-on-year in December, up from +2.7% in November, as anticipated. However, CPI excluding food and energy fell unexpectedly to +3.2% from +3.3%, better than the expected no change. Conversely, the Empire State manufacturing survey revealed a surprising drop to -12.6, indicating weaker business conditions than the forecasted increase.
Focus on Consumer Spending Ahead of Retail Sales Report
Richmond Fed President Barkin emphasized solid demand within the U.S. economy while advocating for a continued restrictive monetary policy to achieve a 2% inflation target. Upcoming retail sales data on Thursday will further assess consumer spending trends, with expectations set for a +0.6% month-on-month increase in December.
Forecast for Earnings Season Looking Bright
This week marks the beginning of earnings season as companies report their fourth-quarter results. Analysts estimate a 7.5% growth in S&P 500 earnings, which is the second-highest prediction in the past three years. The market currently estimates a mere 3% probability of a 25 basis points rate cut during the FOMC meeting scheduled for January 28-29.
Global Market Trends Mixed Today
Overseas markets are showing mixed results today. The Euro Stoxx 50 is up +1.37%, while China’s Shanghai Composite Index has declined by -0.43%, and Japan’s Nikkei Stock 225 is down by -0.08%.
Interest Rates Update: T-Notes and Yields
March 10-year T-notes (ZNH25) are experiencing a gain of +29 ticks, resulting in a drop in the 10-year T-note yield by -13.7 basis points to 4.655%. T-notes have rallied significantly after the lower-than-expected core CPI reading and signs of U.S. economic weakness, as reflected in the Empire manufacturing data.
European Bonds See Yield Declines
European government bond yields are trending downward today. The 10-year German bund yield decreased by -10.3 basis points to 2.549%, while the 10-year UK gilt yield fell by -17.7 basis points to 4.712%. Eurozone industrial production rose by +0.2% month-on-month in November, aligning with expectations.
Pharmaceutical Stocks Experience Pressure
Defensive pharmaceutical stocks, such as Viatris (VTRS), McKesson (MCK), and AbbVie (ABBV), are under pressure today due to broader market rallies. Viatris leads the decliners in the S&P 500 with a drop of more than -3%.
Wrap-Up on Notable Stock Performances
Several stocks are gaining today. Home builders like Builders FirstSource (BLDR), which has risen over +6%, benefit from lower T-note yields, boosting housing demand. Other notable gainers in the Nasdaq 100 include Intuitive Surgical (ISRG), which reported preliminary Q4 revenue of $2.41 billion against a consensus of $2.21 billion.
Earnings Reports Due Today
Today’s earnings reports include Bank of New York Mellon Corp/T (BK), Blackrock Inc (BLK), Citigroup Inc (C), Goldman Sachs Group Inc/The (GS), JPMorgan Chase & Co (JPM), and Wells Fargo & Co (WFC).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
