Market Update—Week of January 21, 2025

Market Update—Week of January 21, 2025
Presented by Zachary R Sturdy

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The core Consumer Price Index (CPI) rose 3.2 percent year-over-year; this softer-than-expected inflation fueled a rally in stocks and bonds. Many major banks released earnings, most of which were strong, and some raised expectations for 2025.
Quick Hits

1. Report releases: Core consumer inflation rose less than expected.
2. Financial market data: Strong bank earnings and softer inflation helped lift equities.
3. Looking ahead: In a light week, economic data will focus on the broader economy, employment,

and housing.

Keep reading for an in-depth look.

Report Releases—January 13–17, 2025

Producer Price Index (PPI): December (Tuesday)
Headline and core producer inflation increased less than expected to end the year.

· Prior monthly PPI/core PPI growth: +0.4%/+0.2%

· Expected monthly PPI/core PPI growth: +0.4%/+0.3%

· Actual monthly PPI/core PPI growth: +0.2%/+0.0%

· Prior year-over-year PPI/core PPI growth: +3.0%/+3.5%

· Expected year-over-year PPI/core PPI growth: +3.5%/+3.8%

· Actual year-over-year PPI/core PPI growth: +3.3%/+3.5%

Consumer Price Index (CPI): December (Wednesday)
Consumer inflation accelerated, with the 2.9 percent year-over-year increase representing the highest level of consumer inflation since July.

· Prior monthly CPI/core CPI growth: +0.3%/+0.3%

· Expected monthly CPI/core CPI growth: +0.4%/+0.4%

· Actual monthly CPI/core CPI growth: +0.4%/+0.4%

· Prior year-over-year CPI/core CPI growth: +2.7%/+3.3%

· Expected year-over-year CPI/core CPI growth: +2.9%/+3.3%

· Actual year-over-year CPI/core CPI growth: +2.9%/+3.2%

Retail Sales: December (Thursday)
Retail sales growth continued, albeit at a slightly slower rate than expected.

· Expected/prior month retail sales monthly change: +0.6%/+0.8%

· Actual retail sales monthly change: +0.4%

National Association of Home Builders Housing Market Index: January (Thursday)
Home builder sentiment unexpectedly improved to start the year.

· Expected/prior month sentiment: 45/46

· Actual sentiment: 47

The Takeaway

· PPI and CPI were lighter than expected, offering support for fixed income and equity markets.

· Retail sales were a bit softer than expected but home builder sentiment beat expectations.

Financial Market Data

Equities rallied as softer-than-expected inflation eased fears from the previous week. The so-called Magnificent Seven (i.e., Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla) rallied. Banks also fared well, with strong earnings from JPMorgan, Wells Fargo, Citi, Morgan Stanley, and Goldman Sachs. (Several raised net interest income guidance for 2025.) Energy, financials, and materials each rose more than 6 percent. Lagging sectors included health care, consumer staples, and communication services.

The Treasury yield curve reversed its steepening from the previous week after inflation was softer than expected. Yields beyond the 2-year dropped meaningfully: 2-year, 10-year, and 30-year yields fell 12 basis points (bps), 16 bps, and 12 bps, respectively, closing at 4.27 percent, 4.61 percent, and
4.85 percent.

The Takeaway

· Softer-than-expected inflation fueled a rally in equities and stocks. Strong bank earnings and a softening dollar helped value stocks outperform growth equities despite a large drop in rates.

· Bonds rallied on the heels of better-than-expected PPI and CPI reports.

Looking Ahead

Reports will be light in this holiday-shortened week. Economic data will primarily focus on the broader economy, employment, and housing.

· On Wednesday, the U.S. Leading Economic Index for December will be released. It is expected to increase 0.1 percent, down from an increase of 0.3 percent in the previous report.

· On Thursday, we expect initial jobless claims for the week ending January 18. Seasonally adjusted jobless claims have been relatively stable, with an average of 210,333 over the past three weeks compared with an average of 194,000 last year.

· Finally, on Friday, existing home sales for December and the S&P Global Flash US PMIs for January will be released. Existing home sales are expected to pick up to 4.2 million, up slightly from 4.15 million in November.

Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent. One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

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Zachary R. Sturdy is located at 307 S. Front St., Ste: 107 Marquette MI, 49855 and can be reached at (906)226-6056.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network®.

Authored by the Investment Research team at Commonwealth Financial Network®.