I'm Colette Auclair, and here is Schwab's early look at the markets for Wednesday October 14.
After mixed results from big U.S. banks kicked off earnings season yesterday, investors brace for more bank earnings and the September Consumer Price Index before the open.
Consensus for CPI points to a sharp 0.6% month-over-month increase in the headline figure, according to Briefing.com, but only a 0.2% rise in core CPI that excludes volatile food and energy prices.
Year-over-year headline CPI is expected to rise 3.7% while core annual CPI is seen hitting 2.5%, compared with 3.6% and 2.4% the prior month.
"CPI and PPI are key to whether rate hike odds shift," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research (SCFR).
As of late Tuesday, odds of an October hike stood at 22% according to the CME FedWatch Tool. But the market factors in 89% chances of a hike before year-end.
"We still expect a hike later this year," said Collin Martin, head of fixed income research and strategy at SCFR.
Beyond CPI headlines, it's important to get a sense of monthly inflation breadth, meaning the percentage of CPI components up more than 3% year-over-year. That percentage reached 60% in August, and that probably needs to decline sharply in September for the Fed to feel there's been progress. Fed officials have emphasized the importance of this metric.
Treasury yields—back from Monday's holiday--dropped early Tuesday after Fed Governor Christopher Waller said higher yields are curbing demand in interest-rate sensitive sectors, Bloomberg reported. That implies yields are doing some of the Fed's job for it. However, the strength in Treasuries behind that yield slide didn't last, and the benchmark 10-year yield ended down just two basis points. Late selling might have reflected pre-CPI anxiety.
In an interview with Bloomberg late Tuesday, New York Fed President John Williams said one more rate hike is appropriate this year and he doesn't see the need for another in 2027. He expects inflation to cool next year, Bloomberg reported.
In a sign of recent financial industry struggles, the usually reliable JPMorgan Chase missed expectations, while Wells Fargo offered mixed results. However, Citigroup and Goldman Sachs both topped consensus.
Overall, the four big banks reporting Tuesday had a combined third quarter profit of $32 billion, up 14% annually, the Wall Street Journal noted, while combined revenue rose 9% to $115 billion, powered by strong consumer spending and AI loan demand.
Today brings results from Bank of America and Morgan Stanley. Last month, Bank of America warned that its third-quarter investment banking revenue could slow and forecast flat trading revenue.
There were several reasons some of Tuesday's bank results disappointed, though the industry looks healthy overall judging from their releases. With JPMorgan Chase it was an 8% quarter-over-quarter investment banking fee drop. Those fees were up 14% from a year earlier, and the company reported "strong levels of client activity."
Nevertheless, the quarterly drop reinforced ideas that the strong start to the year for initial public offerings (IPO) across the banking industry flagged in the third quarter. This came as some prominent firms postponed IPOs, possibly due to tighter financial conditions as yields rose. Fixed income trading growth also slowed across the industry, possibly due to the bond market slump.
There were things to like in JPMorgan's results, including average loans up 10% year over year and a 6% rise in net interest income (the difference between what a lender earns on loans and pays out on deposits).
Wells Fargo saw net interest income rise 5%, evidence that banks can profit in a rising rate environment and that high yields haven't yet hurt the loan business. Both banks cited solid consumer and business trends and posted solid loan growth.
Combing through bank results, JPMorgan Chase posted earnings per share of $5.57, short of the $5.90 consensus, while revenue of $50.91 billion missed consensus of $51.22 billion. Wells Fargo's revenue was up 2% year over year but short of consensus. It was the third time in four quarters Wells Fargo has missed revenue consensus, MarketWatch noted.
Goldman Sachs reported a strong quarter with earnings per share powering past consensus. Revenues rose 23% annually, driven by global banking and markets, though that business suffered a sequential loss. Citigroup reported earnings and revenue that topped consensus. Revenue rose 8% year over year, driven by growth in services, wealth, and markets and banking. Equities trading had a strong quarter, and net-interest income rose 20% annually.
Tech remained under pressure Tuesday after another tough day in South Korea's markets. Memory stocks slumped this week on worries about possible Chinese competition with cheaper offerings. Micron, SK Hynix, and Sandisk all fell a second straight day.
Some AI-related earnings approach, including ASML today and Taiwan Semiconductor Manufacturing tomorrow. Both might help investors better understand underlying demand for chips and other components key to the AI build-out. TSM is the world's biggest chip builder.
September existing home sales were the only important data to arrive Tuesday and they slightly topped estimates at a seasonally adjusted annual rate of 3.99 million, up 1.5% for the month but down 2.2% annually. Median prices rose 1.3% year-over-year, while sales fell year-over-year in all four regions of the country. High mortgage rates kept demand down and August and September sales were down from earlier in the summer.
Tomorrow brings the September Producer Price Index and September retail sales. Analysts expect retail sales growth to slow to 0.3% from August's 1.2%, while consensus for PPI is 0.5%. Core PPI is expected to rise 0.3%, according to Briefing.com.
Checking the geopolitical situation, things were relatively quiet but oil rose again and topped $94 per barrel in the U.S. Today brings weekly U.S. stockpiles data after a sharp drop a week ago.
In trading Tuesday, major indexes didn't travel far from Monday's closes, with trading subdued ahead of CPI. Buying interest seems slim with little enthusiasm yet toward testing last week's all-time highs.
Five of 11 S&P 500 sectors rose Tuesday, down from eight on Monday, and energy led again. Communication services had another strong day, while info tech managed to finish up just slightly. Financials fell 0.4% on the big earnings day.
Checking individual Tuesday movers, Johnson & Johnson dropped 5.7% despite earnings that beat estimates and in-line revenue. The health giant also raised its outlook. However, its med-tech business missed analysts' estimates, and the company indicated it might spin off its orthopedics business, Barron's reported.
Many of the large banks that reported Tuesday saw their shares drop. This included JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo. Citigroup suffered most, down 5%, possibly hurt by weakness in its markets revenue that fell 13% sequentially.
Applied Materials fell almost 7% after the chip equipment maker declined to give a forecast for the wafer fab equipment industry on the company's investor day, Barron's reported. This is equipment that turns raw silicone into chips.
Meta Platforms rose another 2.6% a day after revealing new AI offerings.
SpaceX dropped more than 4%, hurt by overall weakness in AI and the South Korean chip market.
ADM rose 3%, possibly helped by rising diesel prices. ADM makes biodiesel.
Online dating network Bumble rose 56% after the Wall Street Journal reported it's in talks to go private.
The Dow Jones Industrial Average® ($DJI) fell 180.45 points (-0.35%) Tuesday to 51,670.10; the S&P 500 Index ($SPX) dropped 1.79 points (-0.02%) to 7,805.45, and the Nasdaq Composite® ($COMP) slipped 41.52 points (-0.15%) to 27,204.38.