Market Commentary: January 15, 2025

Market Optimism Rises as December CPI Report Shows Inflation Cooling Slightly

This morning’s market tone is vastly improved following the release of the December CPI inflation report. The report showed the Core CPI (excluding Food & Energy) slowing on a Year-over-Year basis to 3.2%, an improvement compared to November’s 3.3% and the market consensus forecast of 3.3%.

While this may seem like a modest improvement, recent market sentiment had turned bearish due to concerns that the Federal Reserve may not have done enough to combat persistent inflationary pressures. Analysts at Goldman Sachs believe the outlook for lowering inflation is improving. They expect wage growth and rent hikes to slow, leading to lower inflation in the coming months.

Big Banks Kick Off Q4 Earnings Season with Strong Results, Bolster Loan Loss Reserves

This morning also marked the beginning of the Q4 2024 earnings season. Several of the nation’s largest banks, including JP Morgan, Wells Fargo, Citigroup, and Goldman Sachs, reported earnings.

Collectively, these banks posted strong results, with Goldman Sachs (+45.6%) and JP Morgan (+17.5%) standing out as top performers relative to consensus earnings estimates. Another notable trend in the banking sector is the continued increase in loan loss reserves, serving as a buffer against rising industry-wide consumer delinquencies.

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Treasury Rally Drives Relief in Markets: Stocks Surge as Yields Drop

The closely watched Treasury market is rallying today, pushing rates lower and driving equity prices higher. The benchmark 10-Year Treasury yield is now trading at 4.64%, down from 4.80% (its highest level since November 2023) yesterday.

Rallying bond prices have created a “relief rally” in stock prices. The major indices are performing as follows:

• S&P 500: +1.64% to 5939

• DJIA: +1.48% to 43161

• NASDAQ: +2.22% to 19467

CPI Offers Market Boost, But Fed Remains Steady on 2025 Rate Cut Outlook

While today’s CPI data has boosted market optimism, it’s unlikely to significantly impact the Federal Reserve’s stance on 2025 rate cuts. The Fed Funds Futures market still does not anticipate any rate cuts before June 2025 and currently prices in only one 25 bps rate cut for the entire year.