January 15, 2025 | Fuel for Further Upside

MARKETS

S&P 500: Up +90 points to 5932, VIX: 16.61

Asia: Japan -0.08%, China -0.43%, Hong Kong +0.34%

Europe: Euro Stoxx 50 +1.40%, FTSE +1.24%, DAX +1.73%

FX: USD (DXY) down 0.04%, EUR down 0.26%, GBP down 0.01%, JPY up 0.88%, CNY down 0.01%

Energy: WTI Crude up 2.17% to $79.17, Brent up 1.63% to $81.22

Cross markets: Terminal rate unch at 4.33, Implied rate cuts 2-years from terminal up ~4bp at 48bp, 2/10 yield spread +39bp

Treasuries: 2-year yields down ~9bp at 4.281%, 10-year yields down ~12bp at 4.674%, 30-year yields down ~8bp at 4.892%

WHAT WE'RE THINKING

Snapshot: US equities?are broadly higher on Monday after a cooler-than-feared CPI reading triggered a pullback in bond yields. Bank earnings are another bright spot with C, GS, BK, JPM and WFC all higher after reporting.?Rate sensitive groups continue to rally with homebuilders/building materials lifting from oversold levels, while defensive sectors like Staples and Health Care lag.??ISRG is a notable exception after guiding Q4 above street, citing solid procedure volumes/customer buying trends.?Treasury yields are lower, especially in the belly of the curve with 5 and 10-year yields down ~14bp each. The Dollar Index is slightly lower with a weaker euro offsetting a more significant pullback. Gold, copper and WTI crude are all higher.??

• December headline CPI was inline with expectations rising to +2.9% YoY to its highest level since July. Similar to the PPI report, energy prices were responsible for the largest uptick led by a +4.4% MoM increase in gasoline prices.?
• Core CPI is the bigger focus after running cooler-than-expected at +0.2% MoM vs. expectations for +0.3%, which took the YoY number down -10bp to +3.2%.?
• Elsewhere, the January NY Fed?Empire manufacturing survey came in weaker than the forecast with sharp declines in new orders and shipments, although optimism improved.?
• Richmond Fed President?Barkin argued that inflation is still moving down toward the 2% target, adding that he’s not currently concerned about overheating. Minneapolis Fed President?Kashkari mentioned that tariff retaliation could impact inflation, while NY Fed President?Williams?also highlighted government policy uncertainties in advocating for a data-dependent approach.??
• As for upcoming data, tomorrow brings December retail sales, import/export prices, homebuilder sentiment and weekly jobless claims. Industrial production, housing starts and building permits are due on Friday.
• There will also be interest in tomorrow’s confirmation hearing for Treasury Secretary nominee Scott Bessent. The confirmation hearing for OMB chief Russell Vought (same job in Trump’s first term) is taking place this morning and includes some reassuring comments on spending, deficits and tariffs.??
• Overseas developments include a near-record liquidity injection of CNY960B (~$131B) in China via the 7-day repurchase agreement.??UK CPI also came in cooler-than-expected, while Germany GDP fell -0.2% in 2024, its second consecutive year of contraction.??
• APD is another earnings-related outperformer after a positive FQ1 preannouncement. Earnings after the close include results from CNXC, FUL, HOMB, RIO and SNV.??TSM reports earnings before the open tomorrow along with BAC, MS, MTB, PNC, UNH and USB.??

Equities: The Russell 2000 (RTY) and S&P 500 (SPX) triggered momentum divergence buy signals at the close on Monday after both indices reached short-term oversold levels.??The SPX also filled the post-election upside gap from 11/6 before staging the intraday reversal.??Today’s rally follows a week where global money markets (cash) took +143.3B of inflows, which is the largest weekly inflow since the week ending Wednesday March 25, 2020 (peak pandemic).??I recall it was a Wednesday, because the ‘all clear’ for equities came when credit spreads narrowed after the Fed backstopped investment grade corporate bond Monday March 23, 2020.??The week before marked the all-time record extreme in bearish equity sentiment as measured the AAII.??Bearish equity sentiment may not be at extreme levels (neutral at the moment), but the $143.3B of weekly flows made its way to money markets rather than equities because investors are currently risk averse.??Of course, equity sentiment and weekly fund flow data are considered contrarian indicators, and a good portion of those flows will make their way to equity markets as sentiment improves.??Today’s rally also doesn’t include meaningful participation from corporate buybacks as this week marks the peak of the blackout window. Corporate buybacks were the single largest source of equity demand in 2024 with authorizations expanding in 2025.? ?Buybacks are expected to be a factor again when 45% of the SPX market cap is able to return to the market the week of January 24.?

FACT OF THE DAY

The sun glows blue as it sets in the Martian sky. The red dust in the atmosphere scatters red light, so when anyone looking around would see a reddish sky. Meanwhile, the red wavelengths are filtered out of the direct path of light from the sun, leaving light towards the bluish end of the color spectrum. Those looking at the sun will see it as blue.?

JSC IN THE MEDIA

Consumer Confidence Falls: Andrew joins Bloomberg Businessweek to discuss market outlook for 2025. Skip ahead to the 7:56 mark for Andrew’s commentary. Listen Now

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Outlook for Mag 7: Andrew joins a Schwab Network panel to discuss the narrowing gap between the Magnificent 7 and the rest of the S&P 500. Watch Now

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Markets react as tensions rise in the Middle East: Andrew comments on recent events in the context of a market that is richly valued and therefore more sensitive to shocks of all kinds. Read on Reuters

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See more of JSC in the Media.

THIS DAY IN HISTORY

January 15, 1967: The Green Bay Packers of the National Football League defeat the Kansas City Chiefs of the American Football League in the first-ever AFL-NFL World Championship, later known as Super Bowl I. Founded in 1960 as a rival to the NFL, the AFL would eventually merge with its predecessor to form conferences, and the Super Bowl today still features the winner of the NFC and AFC. The unlikely hero of the game was backup wide receiver Max McGee, who, after the starter was injured, found himself scoring two touchdowns despite feeling under the weather from a late night out the night before. Coach Lombardi with McGee below.?

CATALYST CALENDAR

Tomorrow: 1) Australian jobs for April; 2) Japan machine tool orders for April; 3) ECB economic bulletin; 4) US weekly continuing claims; 5) US import prices for April and; 6) earnings before the open: Deutsche Telecom, DSX, EQM, Merck KGaA, Prudential PLC, WIX and WNC. After the close: AMAT, CDR, FTCH and NLOK.

Friday: 1) China April Industrial Production, retail sales, Fixed Asset Investment and jobless rate; 2) India imports/exports for April; 3) Germany’s Q1 GDP; 4) Eurozone Q1 GDP; 4) Eurozone trade balance for March; 5) US retail sales for April; 6) US Empire Manufacturing Index for May; 7) US Industrial Production for April; 8) US Michigan Confidence for May and; 9) earnings before the open from DKNG, JD and VFC.

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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