In the coming week I expect more inflation turmoil and the beginning of a challenging earnings season.
After last week’s jobs surprise and Friday’s selling on the surprising strong showing on employment and the U.S. economy, the Wednesday, January 15 release of the Consumer Price Index (CPI) inflation numbers for December will be a big deal. The December CPI is expected to show a 0.3% increase on a month to month basis, according to a Reuters poll. Anything stronger than that is likely to lead to more selling in a market suddenly spooked at the prospect that an increase in inflation could actually lead the Federal Reserve to raise rather than cut interest rates in 2025.
Watch to see if the yield on the 10-year Treasury continues its march toward 5%. The yield finished last week at 4.76%, up 7 basis points for the week and 43 basis points in the last month. A Number of Wall Street analysts have pegged 5.1% as the top in the current swing. Any increase that pushes yield near that number will produce more nervousness.
The Federal Reserve has been unable to reduce inflation to its 2% target rate. (Remember that the Fed uses the PCE, Personal Consumption Expenditures index, rather than the CPI to track inflation. The CPI typically runs a bit hotter than the PCE.) In its December update of its economic projections the Fed projected that inflation will end 2025 at 2.5%.
This week also brings the start of fourth quarter earnings season. And the markets will be glad to have something to think about other than inflation and interest rates. S&P 500 company earnings are expected to have climbed nearly 10% in the quarter from a year earlier, according to LSEG IBES.
So earnings reports this quarter could bring good news. That’s if earnings come in at or above those lofty expectations.
JPMorgan Chase (JPM) begins the earnings parade on Wednesday, January 15. The consensus EPS forecast for the quarter is $4.02. The reported EPS for the same quarter last year was $3.97. That would be earnings growth of just over 1% year over year. JPMorgan Chase has surprised on earnings for the last four quarters, however.
