Schwab Market Update

Published as of: January 16, 2025, 9:19 a.m. ET

(Thursday market open) After learning yesterday how much U.S. prices rose last month, investors found out today how much consumers spent. December retail sales climbed 0.4% from a month earlier, a bit less than the consensus estimate of 0.5% and down from 0.8% in November, but the closely watched "control group" of retail sales that excludes certain categories jumped 0.7%, a sign of strength under the surface. Major indexes and Treasury yields moved little ahead of the open following yesterday's stock market surge that keyed off lower inflation growth and bank results.  

Big bank earnings rolled along this morning after yesterday's solid start. Both Morgan Stanley (MS) and Bank of America (BAC) exceeded Wall Street's estimates. Bank of America also offered solid guidance for net interest income, an important component of banking profits. "Robust results from lenders make for a strong start to the earnings season and help profit growth at non-Magnificent Seven companies pick up into 2025," said Jeffrey Kleintop, chief global investment strategist at Schwab.  

The market keeps feeling the impact from yesterday's constructive Consumer Price Index (CPI) data, which showed core CPI up 0.2% in December, lower than the November reading. Core excludes volatile food and energy. The 10-year Treasury note yield (TNX:CGI) edged higher this morning after diving yesterday on the news, though odds of a Federal Reserve rate pause remain nearly 100% ahead of its meeting later this month and this morning's weekly initial jobless claims number stayed low at 217,000. "Yields are pulling back decisively from the recent rise to around 4.8%," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "If that number can remain a near-term high-water mark, then this will help bullish momentum as we move into fourth quarter earnings season."

1. Early read on chip sector: Early today, Taiwan Semiconductor Manufacturing (TSM) reported better-than-expected quarterly results and issued positive guidance, sending shares up more than 4% in pre-market trading. The company, which manufactures chips for companies including Apple (AAPL) and Nvidia (NVDA), said it expects strong AI growth to continue in 2025.The results could affect shares of major U.S. chip makers including Nvidia, Advanced Micro Devices (AMD), Micron (MU), and others. Taiwan Semiconductor is the world's largest chip foundry, so its outcomes can serve as a fulcrum for industry demand. Shares of Nvidia rose 1% ahead of the open, and Apple inched higher.
2. Get set for Chinese data: Early this evening U.S. time, brings a host of data from Beijing including gross domestic product (GDP), retail sales, industrial production, and unemployment. Consensus for the important fourth quarter GDP number is 5% year over year, according to Trading Economics, up from 4.6% in the third quarter. Data could have an impact on U.S. shares tomorrow, especially multinational U.S. companies like automakers, tech firms, and pharmaceutical manufacturers that sell heavily in China, which is preparing for the Lunar New Year. The week-long holiday often sees a surge in manufacturing, industrial, and export activity ahead of a national production shutdown. A sharp rise in consumer spending and tourism often accompanies the holiday period.. "This is the last update for a couple of months just as China's slowing economy might be starting to see some signs of stabilization," said Schwab's Kleintop.
3. Earnings beyond the "Magnificent": Though earnings from the so-called Magnificent Seven are expected to grow around 20% this year, that's a decline from more than 30% in 2024 as mammoth technology, communication services, and consumer discretionary firms face the law of large numbers. Total S&P 500 earnings, on the other hand, are expected to rise nearly 15% in 2025, up from 9.4% in 2024, as sectors like health care, materials, and industrials compete with tech for the lead. This may sound positive—and it is from a market breadth perspective. But it threatens Wall Street's two-year string of 20% annual gains because the major indexes are so top-heavy. The biggest 10 stocks now constitute nearly 40% of the value of the SPX, which means if their earnings slump it may be hard for the overall index to keep galloping even if most SPX stocks improve their earnings growth. That's why it's worth tracking the S&P 500 Equal Weight Index (SPXEW), which weighs all 500 stocks equally and can offer a better perspective if other stocks take the earnings baton from the "magnificent" ones. Cyclicals have been leading the market this year.

• Bank of America shares were down slightly in pre-market trading despite the company reporting fourth quarter earnings per share of $0.82, better than the $0.77 FactSet consensus. Revenue of $25.3 billion just edged above analysts' average estimate. Importantly, Bank of America said it's on track to grow net interest income throughout the year ahead. During the fourth quarter, the company said it "saw better than industry growth in deposits and loans." Shares may be down slightly due to positive news being built in during the stock's 7% rally since the start of the year.
• Morgan Stanley shares rose 1.2% ahead of the open as the company's fourth quarter earnings per share of $2.22 easily beat the FactSet consensus of $1.70. Revenue rose 25.9% year over year to $16.23 billion, more than $1 billion above the average analyst estimate. Strong equity trading, an area where revenue rose 51% year over year, helped fuel the solid quarter. In its press release, Morgan Stanley noted "continued improvement in investment banking," which echoed big banks reporting yesterday that saw a pick-up in mergers and initial public offerings last quarter.
• JPMorgan Chase (JPM) fell 1.1% in the early hours but results yesterday from JPM, Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC) topped analysts' estimates for the most part thanks to growth in trading and investment revenue.
• UnitedHealth Group (UNH) dropped nearly 3% before the opening bell after the firm reported fourth quarter revenue of $100.81 billion, slightly below the FactSet consensus of $101.6 billion. That ended a 17-quarter streak of revenue beats, according to MarketWatch. Earnings per share beat consensus views, but operating costs rose.
• Target (TGT) slipped more than 1% ahead of the open despite reporting strong holiday season sales and raising comparable sales guidance for the fourth quarter to 1.5% from flat. Comparable sales measure sales at stores open a certain amount of time. "Both Black Friday and Cyber Monday promotional periods saw record-high sales," Target said in a press release. Total sales during the two holiday months grew 2.8% from a year earlier.

Technical signal triggered: Earlier this week, the SPX 20-day moving average fell below the 50-day moving average, a bearish signal. However, the SPX appeared to find support this week at its 100-day moving average now near 5,828 and tested the 50-day moving average near 5,857 Wednesday. You can learn more about how to analyze moving averages and other indicators in: Trader Talks: Schwab Coaching Webcasts. 

A strong dollar normally weighs on gold and did so in late 2022 when the U.S. dollar index ($DXY—candlesticks) peaked above 114. Gold (/GC—purple line) slumped then to below $1,700 an ounce. Today, the dollar is testing those 2022 highs but gold is also climbing, which may partly reflect worries about global fiscal conditions and geopolitics. Both the dollar and gold are often perceived as safe havens during troubled times, though no investment is safe.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

January 17: December housing starts and building permits.
January 20: Markets closed for observance of birthday of Dr. Martin Luther King, Jr. 
January 21: Earnings expected from 3M (MMM), D.R. Horton (DHI), Fifth Third (FITB), Netflix (NFLX), Capital One (COF), United Airlines (UAL).
January 22: Leading indicators, and expected earnings from Johnson & Johnson (JNJ) and Procter & Gamble (PG).
January 23: Expected earnings from American Airlines (AAL), Union Pacific (UNP), and CSX (CSX).