Stock Buyers Step In to Fuel Wall Street Rebound: Markets Wrap

Lenders will also be quizzed about the 2025 outlook — as the Fed has signaled fewer rate cuts this year, which could stunt future profit growth.

“The big banks often give us a good insight into what we can expect to see from the more consumer oriented companies, which report earnings later on in earnings season,” said Michael Landsberg at Landsberg Bennett Private Wealth Management. “If credit card usage is up, that typically bodes well for companies that sell directly to consumers.”

“While economic growth has remained resilient in the face of ongoing inflation pressures, we expect growth to slow in 2025,” said Megan Horneman at Verdence Capital Advisors. “As a result, the current earnings estimate for 2025 may be too optimistic.”

Horneman says she will monitor closely the comments from company leaders regarding inflation, their view on the labor market, what they are seeing regarding consumer spending and what a new administration may mean for their bottom line.

Options traders are bracing for one of the most-volatile earnings periods in history. They expect individual stocks in the S&P 500 to move 4.7% on average in either direction after reporting their results, the largest earnings-day moves on record, according to strategists at Bank of America Corp.

“We believe this earnings season will once again be stock pickers’ paradise,” Savita Subramanian, head of US equity and quantitative strategy, wrote Monday.

Meantime, HSBC strategists led by Max Kettner say their sentiment and positioning indicators are already flashing a mild buy signal. They noted that a hawkish surprise from US data this week including on inflation and retail sales could present a buying opportunity for risk assets.

“Some bad news would be good news right now,” the strategists wrote.

Underlying US inflation probably cooled only a touch at the close of 2024 against a backdrop of a resilient job market and steadfast economy, supporting the Fed’s go-slow approach to further rate cuts.

The consumer price index excluding food and energy is seen rising 0.2% in December after four straight months of 0.3% increases, according to the median projection in a Bloomberg survey of economists. The core CPI, a better snapshot of underlying inflation, is forecast to have risen 3.3% from a year earlier — matching readings from the prior three months.

“The post-data reaction has left Treasuries oversold,” said Will Compernolle at FHN Financial. “Bond market pricing reflects too much investor confidence in labor market strength and an overly pessimistic inflation outlook. There may be nothing today or tomorrow on the calendar that will snap bond yields out of their upward drift, but a 0.2% increase in the core CPI on Wednesday, as the consensus expects, would give a bond-bullish jolt to the prevailing market sentiment.”

The equity market has seen more pronounced reactions to macroeconomic news since late 2024, with the S&P 500 swinging at least 1% in either direction in 8 of the last 15 trading sessions since the Fed’s latest rate decision Dec. 18.

Sentiment around equities is being explained by bond yields more than any point in the past 30 years, according to Michael Kantrowitz, chief investment strategist at Piper Sandler & Co. Market weakness will more likely come from higher rates rather than softer growth, he says, a dynamic that begin in 2022 during the biggest paradigm shift for stocks since the 2007 peak in value over growth.

This year’s sharp decline in funding spread suggests that institutional investors’ positioning in equities is shifting as markets rethink the Fed’s interest-rate path, according to strategists at Goldman Sachs Group Inc.

The funding spread — a measure of demand for long exposure through equity derivatives such as swaps, options and futures — has tumbled to around 70 basis points from about 130 basis points in late December, they said.

“In our experience, large short-term moves in funding almost always mean that there has been a change in demand trends from professional investors,” the team led by John Marshall wrote in a note to clients. “We believe that pension funds, asset managers, hedge funds and CTAs have all been net sellers over the past few weeks.”

Corporate Highlights:

• Apple Inc.’s iPhone sales declined about 5% globally in the final quarter of last year, hurt by underwhelming upgrades and competitors making inroads in China.

• The White House unveiled sweeping new limits on the sale of advanced AI chips by Nvidia Corp. and its peers, leaving the Trump administration to decide how and whether to implement curbs that have encountered fierce industry opposition.

• Macy’s Inc. issued a downbeat outlook for sales in the current quarter, a sign that executives might have been too optimistic about their expectations for a solid holiday shopping season.

• Honeywell International Inc. is poised to proceed with a breakup following pressure from activist Elliott Investment Management to split, people familiar with the matter said.

• Cleveland-Cliffs Inc. is partnering with Nucor Corp. to weigh a potential joint bid for United States Steel Corp., according to a person familiar with the matter. Cliffs’ top boss later confirmed his interest in the American steelmaker at a press event.

• Lululemon Athletica Inc. expects fourth-quarter sales to surpass the market’s expectations, showing the upscale activewear brand is fending off upstart competitors and slower growth in consumer spending.

• Abercrombie & Fitch Co. raised its fourth-quarter sales outlook on better-than-expected holiday sales, but the increase wasn’t enough to reassure investors the retailer could keep up the fast pace of growth.

• Shake Shack Inc. reported fourth-quarter sales that surpassed expectations, signaling that efforts to raise its profile and serve customers faster are paying off.

• Health insurance companies selling private Medicare Advantage plans in the US would see a greater increase in payments in 2026 than in the current year if a proposal released Friday is adopted by the incoming Trump administration.

• Moderna Inc. slashed its sales forecast for this year as it struggles with slow demand for its Covid and RSV vaccines.

• Johnson & Johnson agreed to acquire Intra-Cellular Therapies Inc., a company focused on treatments for central nervous system disorders, for about $14.6 billion.

Key events this week:

• US PPI, Tuesday

• Fed’s John Williams and Jeffrey Schmid speak, Tuesday

• Eurozone industrial production, Wednesday

• Citigroup, JPMorgan, Goldman Sachs, Bank of New York Mellon, Wells Fargo and BlackRock earnings, Wednesday

• US CPI, Empire manufacturing, Wednesday

• Fed’s John Williams, Tom Barkin, Austan Goolsbee and Neel Kashkari speak, Wednesday

• TSMC earnings, Thursday

• ECB releases account of December policy meeting, Thursday

• Bank of America, Morgan Stanley earnings, Thursday

• US initial jobless claims, retail sales, import prices, Thursday

• China GDP, property prices, retail sales, industrial production, Friday

• Eurozone CPI, Friday

• US housing starts, industrial production, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2% as of 4 p.m. New York time

• The Nasdaq 100 fell 0.3%

• The Dow Jones Industrial Average rose 0.9%

• The MSCI World Index was little changed

• Bloomberg Magnificent 7 Total Return Index fell 0.4%

• The Russell 2000 Index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.3% to $1.0216

• The British pound fell 0.2% to $1.2177

• The Japanese yen was little changed at 157.67 per dollar

Cryptocurrencies

• Bitcoin fell 0.6% to $93,753.82

• Ether fell 5.2% to $3,094.34

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.79%

• Germany’s 10-year yield advanced two basis points to 2.61%

• Britain’s 10-year yield advanced five basis points to 4.88%

Commodities

• West Texas Intermediate crude rose 2.8% to $78.68 a barrel

• Spot gold fell 1% to $2,662.09 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao, Margaryta Kirakosian, Catherine Bosley and Isabelle Lee.

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