Week in Review: January 17, 2025

January 21, 2025

Recap & Commentary

Markets ended the week higher with the S&P 500 enjoying its best week since November, as inflationary concerns temporarily receded following the release of both consumer and producer inflation data. Treasury yields reflected the renewed optimism as the 10-Year Treasury yield retreated nearly 0.20% over the course of the week, largely retracing the prior week’s sharp increase. The pullback was also aided by comments from Fed Governor Christopher Waller who said after the release of inflation data that “As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in.”

The inflation data jockeyed for attention with a bevy of other headlines including the announcement of a cease fire between Israel and Hamas, Senate confirmation hearings for a number of President Trump’s cabinet nominees, shocking images of devastation caused by the Los Angeles fires, and the start of fourth quarter earning season.

Multiple large banks, including JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, announced fourth quarter results marking the unofficial start to earning season. Through Friday, 9% of S&P 500 companies had reported earnings. Thus far, 79% have beaten their consensus forecast. According to industry group FactSet, consolidated earnings growth is expected to be 12.5%, which if realized would be the strongest since 4Q21.

Economic Commentary

Headline consumer inflation (CPI) rose an expected 0.4% in December, its fastest pace since March 2024. Forty percent of the increase was driven by energy prices which rose 2.6% in December. Compared to a year ago, CPI rose 2.9%, the fastest annual pace since July. Despite the increases, markets seemed relieved that the monthly and annual increases were inline with expectations, and not any higher. Investors were also likely pleased with core readings, excluding food and energy prices, which rose 0.2% and 3.2% for the month and year. Both measures came in 0.1% less than expected. One hopeful sign was slowing shelter prices which grew 4.6%, the slowest pace since Jan. 2022.

Headline producer inflation (PPI) rose 0.2% in December, half the expected 0.4% increase. Compared to a year ago, headline PPI increased 3.3% vs. an expected 0.5% increase.  On a core basis, monthly PPI was flat while the annual pace rose 3.5% vs. expectations for a 3.8% increase.

Retail sales rose 0.4%, less than expected, but still a healthy pace, while November sales were revised up from 0.7% to 0.8%. A core measures of sales stripping out several volatile categories and which factors directly into the GDP calculation, rose 0.7%, ahead of the expected 0.4% pace, indicating consumer spending remained supportive of economic growth during the fourth quarter.

Housing starts unexpectedly jumped 15.8% in December, the largest monthly increase since March 2021, as they rose to their highest level in 10 months. Building permits, an indicator of future building activity, rose a more modest 1.6%, reaching their highest level since February.

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Of Note

Israel and Hamas agreed to a cease fire which took effect Sunday. The first phase of the deal is expected to last six weeks and calls for Hamas to release 33 hostages in exchange for hundreds of Palestinians detained by Israel.

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Market Indices   (As of 01/17/2025)

• Manufacturing PMI
• Services PMI
• Existing Home Sales
• Consumer Sentiment
• Initial Jobless Claims