Daily market snapshot

• Stocks finish modestly lower following retail-sales data: U.S. equity markets closed modestly lower Thursday following retail-sales data for December. Headline retail sales rose by 0.4% for the month, while control-group sales posted a healthy 0.7% gain, signaling ongoing momentum in consumer spending. On the corporate front, fourth-quarter earnings from U.S. financial services companies continue to exceed expectations, with Bank of America and Morgan Stanley reporting better-than-expected fourth-quarter profits.* This follows strong results from JPMorgan, Goldman Sachs, Citigroup and Wells Fargo yesterday.* The positive earnings news has driven the financials sector of the S&P 500 higher by over 5% this week and has helped support broader risk-on sentiment in equity markets. The S&P 500 and Dow finished lower on Thursday by 0.2%, while the tech-heavy Nasdaq shed roughly 0.9%.* Mid-cap stocks outperformed, with the Russell Mid-cap Index gaining close to 1%, reflecting optimism around U.S. economic conditions following today's retail-sales report. Bond yields finished the day lower, with the 10-year Treasury yield closing around 4.62%.*
• Consumer-spending trends remain healthy: Retail-sales data for December showed that U.S. consumer-spending trends finished the year strong in 2024. Headline retail sales rose by 0.4% in December, slightly below expectations for a 0.5% gain; however, the November reading was upwardly revised from 0.7% to 0.8%.* Looking into the drivers for December, spending at furniture and home stores, along with sporting goods stores, was strong, each rising by more than 2% and reflecting an appetite for discretionary purchases from consumers. Control-group sales, which excludes spending on more volatile categories, such as auto dealers, gas stations, building materials, office supplies and tobacco stores, rose by 0.7%, above expectations for a 0.4% gain.* Consumer spending has been strong in recent quarters and has been the primary driver behind resilient U.S. economic growth over the past two years. We believe strong household balance sheets, moderating inflation, and healthy labor-market conditions will provide ongoing support to consumer spending in 2025, helping extend the economic expansion.
• Choppy start to the year, but the overall backdrop remains supportive: It's been a volatile start to 2025, with the S&P 500 logging four days of moves greater than 1% (two up and two down) in the first nine trading days of the year.* Despite the turbulent start, the S&P 500 is up about 1% year-to-date, with most sectors of the index seeing positive returns. While there will likely be more bumps along the way, we believe the backdrop is supportive for an ongoing expansion in the current bull market. Fourth-quarter corporate earnings are off to a strong start, with several of the largest U.S. banks reporting better-than-expected profits.* Analysts expect the recent earnings momentum to continue into 2025, with S&P 500 earnings expected to grow by about 14% for the year.* Additionally, labor-market conditions remain healthy, and we expect inflation will continue to moderate in 2025, supporting household real incomes and consumer spending. The Atlanta Fed's GDPNow forecast is pointing to fourth-quarter real GDP growth of 2.7%, while the ISM manufacturing PMI rose to its highest since March last month.* While we expect volatility along the way, we believe these conditions point to an ongoing economic expansion and create a supportive backdrop for U.S. equity markets in 2025.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}

• Stocks surge following key inflation data: U.S. equity markets closed sharply higher following U.S. consumer price index (CPI) inflation data that showed core inflation continues to moderate. Headline CPI rose by 2.9% year-over-year in December, slightly above expectations due to a spike in energy prices; however, core CPI rose by 3.2% year-over-year in December, below expectations of 3.3%.* Bond yields finished sharply lower in response, with the 10-year Treasury yield falling roughly 0.14 percentage points to 4.65%.* In addition to the encouraging inflation report, several of the largest U.S. banks reported fourth-quarter results, with takeaways broadly positive. JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs all exceeded analyst earnings expectations for the quarter.* The strong results from U.S. banks and today's inflation report supported risk-on sentiment with the S&P 500 gaining 1.8% and the tech-heavy Nasdaq rising by 2.5%.*
• Headline CPI ticks higher, but core inflation moderates: Headline CPI rose by 0.4% in December and 2.9% on an annual basis, both of which were slightly ahead of expectations.* The index for energy rose by 2.6% in December and was responsible for over 40% of the monthly increase in headline CPI.*** Encouragingly, core CPI, which excludes food and energy, rose by 0.2% in December and 3.2% on an annual basis, with the 3.2% annual gain below expectations for a 3.3% gain.* The 0.2% monthly gain in core CPI was the lowest since July and brings the three-month annualized change down to 3.3% versus 3.7% in the prior month.* The index for shelter, which has run stubbornly high for the past several years, rose by 0.3% in December, bringing the annual change down to 4.6%, the lowest reading since January 2022.* Paired with yesterday's soft producer price inflation report, today's inflation data provides evidence that the disinflationary trend remains intact. We expect productivity gains, moderating shelter inflation, and normalizing labor-market conditions will lead to ongoing disinflation in 2025, though likely not without bumps along the way.
• Corporate earnings in focus: Fourth-quarter earnings season kicked off today, with several of the largest U.S. banks reporting results. Takeaways were broadly positive, with JPMorgan Chase, Wells Fargo, Goldman Sachs and Citigroup all reporting better-than-expected fourth-quarter earnings per share.* JPMorgan CEO Jamie Dimon citied a resilient U.S. economy, healthy labor-market conditions, and strong consumer spending through the holiday season as drivers behind the company's strong fourth-quarter results.** Looking beyond the financials sector, S&P 500 earnings are expected to grow by 11% in the fourth quarter, which, if achieved, would lead to 2024 earnings growth of roughly 8.6%.* Profit growth is expected to accelerate in 2025, with current estimates calling for 14% earnings growth for the S&P 500.* Encouragingly, earnings growth is expected to be positive across all 11 sectors of the S&P 500 in 2025, with the technology, health care and industrials sectors expected to lead the way.* In our view, broad-based earnings growth across both growth- and value-style sectors should support broadening leadership in 2025, strengthening the case for well-balanced portfolios.*

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **JPMorgan Chase Q4 2024 Earnings Press Release ***Bureau of Labor Statistics}

Tuesday, 01/14/2025 p.m.

• Stocks rise ahead of CPI report – Equity markets closed higher on Tuesday, with small- and mid-cap stocks leading to the upside*. Sector performance was mixed, as utility and financial stocks posted the largest gains. Bond yields edged lower on the producer-price report, with the 10-year Treasury yield at 4.78%. In global markets, Europe was down lower, led by energy stocks. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil dropped following a new forecast reflecting steady oil demand and rising output for the U.S. over the next two years**.
• Producer price inflation lower than expected – The producer price index (PPI) rose to 3.3% annualized in December***, below estimates calling for 3.4%*. Year-over-year inflation increased primarily due to lower readings from a year ago rolling out of the figure in what's known as "base effects." Importantly, PPI inflation slowed to 0.2% month-over-month, roughly in line with the average over the past six months, which translates to about 2.5% on an annual basis*. The services component of PPI was flat for the month, which should help reduce consumer services inflation, which remains elevated at about 4.5% year-over-year*.
• Markets turn attention to consumer inflation tomorrow – The consumer price index (CPI) for December will be released on Wednesday, with forecasts calling for inflation to rise to 2.8% annualized, up from 2.7% the prior month*. Core CPI, which excludes more-volatile food and energy prices, is expected to hold steady at 3.3%. While the path will likely be bumpy, we expect inflation to continue to moderate, aided by further shelter-price disinflation and slower wage growth.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet ** U.S. Energy Information Administration *** U.S. Bureau of Labor Statistics}

• Stocks begin the week mixed as bond yields tick higher – Following last Friday's decline in markets, stocks were mixed on Monday. The technology-heavy Nasdaq lagged the broader S&P 500 and Dow Jones. This comes as government bond yields continue their climb higher. The U.S. 10-year Treasury yield climbed to 4.79%, its highest since October 2023*. In our view, this move higher in yields has been driven by a combination of expectations of stickier inflation, a shallower Fed rate-cutting environment, elevated deficits, and an economy that is performing better than expectations. While higher yields have put downward pressure on stock markets, keep in mind that the S&P 500 is down just about 4% from its all-time highs, while the Nasdaq is down about 5%*. In any given year, corrections in the 5%-15% range are the norm, but we would not expect these corrections to morph into severe or prolonged bear markets, particularly given the current solid economic and earnings backdrop.
• All eyes on inflation data this week – After better-than-expected labor market data last week, investor focus will shift to inflation data in the week ahead. On Wednesday, the important consumer price index (CPI) inflation for the month of December will be released, and the expectation is for inflation to tick higher on a headline basis, driven in part by higher energy prices, although core inflation should remain flat. Headline CPI inflation is expected to be 2.9% year-over-year, versus 2.7% last month, while core inflation (excluding food and energy) is expected to 3.3%, in line with last month*. In our view, the recent labor report pointed to wage gains that were moderating, with average hourly earnings falling from 4.0% to 3.9% year-over-year*. This should support an easing in services inflation as well. More broadly, while we see inflation moderating in the months ahead, policy uncertainty remains a question for investors, particularly in areas like tariffs and immigration reform. Nonetheless, while inflation may fluctuate, we see it remaining contained overall, likely in the 2.0% - 3.0% range, with no signals in the economic data of any meaningful reacceleration to the post-pandemic levels of above 4.0%.
• Uncertainty around policy remains an overhang, but economy is in solid shape – With Inauguration Day in the U.S. about one week away, all eyes continue to remain on what policies the new administration will choose to prioritize – and in what order – including tariffs, immigration reform, taxes, and deregulation. Overall, though, the removal of the policy uncertainty alone may be welcomed by the markets, regardless of the initiatives that are highlighted. While there is ongoing uncertainty in the political backdrop, now is a good reminder that financial markets tend not to be driven by politics and headlines, but by fundamentals. We continue to see the economic and market expansion being supported by three key fundamental factors: A solid labor market, which continues to support consumption; positive S&P 500 earnings growth, which will likely reach over 10% in 2025*; and central banks that will still move policy rates lower from here, albeit perhaps more modestly so. After two back-to-back years of solid gains in the U.S. markets and low volatility during this period, we would expect to see some moderation in returns and bouts of increased market volatility ahead. However, we continue to believe that investors can use these pullbacks as opportunities to diversify, rebalance, and add quality investments at better prices across both the growth and value parts of the market.

Mona Mahajan
Investment Strategy

^{Source: *FactSet}

• Stocks drop on higher bond yields – Equity markets closed lower on Friday, as bond yields rose in reaction to the strong jobs report, which gives the Fed a reason to pause its rate cuts in the near term. Interest-rate-sensitive small-cap stocks traded sharply lower. Most sectors were down, as real estate and financial stocks posted the biggest declines. Despite today's broad weakness and the uptick in volatility over the past month, the S&P 500 remains 22% higher from a year ago, supported by solid fundamentals, which today's jobs report highlights. In global markets, Asia was down on continued weakening in China's yuan currency. Europe was also lower, impacted by higher bond yields. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil traded higher on the possibility of additional sanctions on Russia and Iran disrupting supply*.
• Employment report shows faster job growth – Total nonfarm payrolls grew by 256,000 in December, the strongest pace since March, and above estimates for 153,000*. Job gains were broad-based, with strength in the private services sector**, pushing the unemployment rate down to 4.1%. Hourly earnings were up 3.9% annualized, below estimates for a 4.0% rise*, but still supportive of consumer spending and consistent with the Fed's inflation target given recent productivity trends. The upshot is that a strong labor market is positive for the economy and corporate profits, but argues that there is no urgency for the Fed to cut rates, pressuring yields. Also contributing to today's inflation worries was that consumer sentiment ticked down to 73.2, modestly below forecasts, impacted by near-term inflation expectations that rose to 3.3% from 2.8% the prior month. Long-term consumer inflation expectations also rose to 3.3%, the highest since 2008*.
• Bond yields tick higher on revised Fed expectations – Bond yields were up as markets assessed the implications of a resilient labor market for inflation. The benchmark 10-year U.S. Treasury yield is at 4.76%, its highest since 2023*. Bond markets have dialed back expectations for cuts to the fed funds rate, as disinflation has slowed and the labor market has stabilized. Today's data make the case for a longer pause in rate cuts, with markets now pricing in the next cut to be delivered in September from March that was expected previously. Despite the slower pace of easing, we still expect the Fed to be able to cut interest rates toward a more neutral stance over time as inflation stays contained. The shelter component of PCE inflation remains elevated at 4.8% annualized but should continue to moderate as it catches up to other housing-price measures, such as the S&P CoreLogic Case-Shiller U.S. National Home price index, which is up 3.6% over the past 12 months***. Further shelter-price disinflation and slower wage growth should help bring down overall inflation.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Bureau of Labor Statistics ***S&P}