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By and large, investors expected the nation's largest financial institutions to report good earnings results. According to FactSet, fourth quarter earnings were expected to increase 39.5% for the financial sector, partly because of some easy bank comparisons to the year-ago period that contained FDIC special assessment charges. Investors were not disappointed.
JPMorgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Wells Fargo (WFC), and Blackrock (BLK) all blew past their consensus earnings estimates. Goldman had the biggest beat, topping the FactSet consensus estimate by $3.74 or 45.5%.
These stocks are all trading higher in pre-market action and had a helping hand in boosting the equity futures in front of the 8:30 a.m. ET release of the December Consumer Price Index (CPI). The latter, however, gave things an even bigger boost by not providing any negative headline surprises.
Total CPI increased 0.4% month-over-month in December. That was a tad higher than the Briefing.com consensus estimate, but in-line with consensus estimates seen elsewhere. Core CPI, which excludes food and energy, jumped 0.2% month-over-month, which was in-line with the Briefing.com consensus estimate and slightly better than the consensus estimates seen elsewhere.
On a year-over-year basis, total CPI was up 2.9% versus 2.7% in November while core CPI was up 3.2% versus 3.3% in November.
The key takeaway from the report for a market worried about inflation heating up again is that these results were better than feared which, at first blush, shrouded the reality that the consumer inflation rate is still running well above the Fed's 2% target (albeit a target tied to the PCE Price Index).
Treasury yields moved sharply lower on the release and equity futures moved sharply higher. The 2-yr note yield, at 4.36% just in front of the report, is at 4.27% now. The 10-yr note yield, at 4.76% just in front of the report, is at 4.67% now.
The S&P 500 futures are up 88 points and are trading 1.5% above fair value, the Nasdaq 100 futures are up 361 points and are trading 1.8% above fair value, and the Dow Jones Industrial Average futures are up 684 points and are trading 1.6% above fair value.
This trade, and the trade in the Treasury market, has the whiff of short-covering activity that is going to take the indices sharply higher when the opening bell rings. It isn't all short covering though.
The earnings news out of the financial sector was fundamentally good and a basis for some positive price action. There is also a speculative momentum factor at work, evidenced by some big percentage moves in quantum stocks that is tied in part to Microsoft's (MSFT) announcement of its new "Quantum Ready Program."
There will be several things to watch to help determine if today's opening thrust is going to catalyze a shift in the short-term trend that has seen January get off to a sluggish start:
- The 50-day moving average for the S&P 500, which sits at 5,955. Clearing that level on a closing basis is key.
- The 10-yr note yield. It has ratcheted lower on knee-jerk buying interest, but will that buying interest prove to be short lived? Note that the monthly readings were good, but the year-over-year readings still leave much to be desired.
- The behavior of the mega-cap stocks. Will they hold their pre-opening gains or will they backslide (again) and push their weight on the major indices?
The uplifting element so far this week has been the relative strength of the broader market as the mega-cap stocks in aggregate have languished. The S&P Midcap 400 Index is up 2.0%, the equal-weighted S&P 500 is up 1.6%, and the Russell 2000 is up 1.4%. That is encouraging -- and about to get even better with Treasury yields moving lower, earnings results from the financial sector moving even higher, and speculative energy returning to the mix.
