Markets soar after encouraging inflation report, strong bank earnings

Dow surged 630, advancers over decliners about 6-1 & NAZ gained 400.  The MLP index added another 3 to the 315s & the REIT index was up 2 to the 393s.  Junk bond funds went higher & Treasuries were heavily bought, taking yields sharply lower (more below).  Oil rose 1+ to the 79s (5 month high) as traders weigh demand forecasts & gold advanced 21 to 2703.

Dow Jones Industrials

Inflation rose again in Dec as stubbornly high prices continued to strain consumers' finances ahead of the Federal Reserve's next decision on interest rates.  The Labor Dept said that the consumer price index (CPI), a broad measure of how much everyday goods like gasoline, groceries & rent cost, increased 0.4% in Dec while ticking up to 2.9% on an annual basis.  The 2.9% reading is the highest since Jul 2024.  The month-to-month reading came in slightly hotter than expected, while the annual figure was in line with expectations.  The headline figure was up compared with Nov's reading of 2.7%, while monthly price growth continued at the same pace as a month ago.  Core prices, which exclude more volatile measurements of gasoline & food to better assess price growth trends, were up 0.2% on a monthly basis in Dec, in line with expectations & down from 0.3% the prior month.  Core prices were up 3.2% in Dec compared with a year ago, slightly cooler than expected& down from 3.3% in Nov.  Inflationary pressures in the US economy continue to persist despite progress in bringing inflation closer to the Federal Reserve's 2% target over the past year.  High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent.  Price hikes are particularly difficult for lower-income Americans, because they tend to spend more of their already-stretched paycheck on necessities & have less flexibility to save money.  Energy costs accounted for over 40% of the monthly CPI increase, with the Bureau of Labor Statistics' energy index rising 2.6% in Dec after energy prices showed little change in recent months.  Gasoline prices were up 4.4% for the month of Dec & food prices also rose by 0.3% on a monthly basis.  Both food at home & food away from home increased by 0.3% last month.  Prices for meat, poultry, fish & eggs were up 0.6% for the month & 4.2% from a year ago.  Egg prices rose 3.2% & are up 36.8% compared with a year ago amid a bird flu outbreak that has impacted production.  Housing costs  rose by 0.3%, the same as the increase observed in Nov.  The shelter index is up 4.6% over the past year, which is the smallest 12-month increase since Jan 2022.

Inflation rises again in December during Biden's final full month as president

JPMorgan Chase (JPM), a Dow stock, posted record quarterly & annual earnings & revenue, reinforcing the company's status as the biggest & most profitable bank in US history.  Profit rose 50% to $14B in the 4th qtr as noninterest expenses fell 7% from a year earlier, when the firm had a $2.9B FDIC assessment tied to regional bank failures.  Revenue climbed 10% to $43.7B, helped by financial operations & better-than-expected net interest income of $23.5B, exceeding the estimate by almost $400M.  CEO Jamie Dimon said in the release that the economy was “resilient,” buoyed by low unemployment & healthy consumer spending, as well as optimism for the Trump administration's pro-growth agenda.  “However, two significant risks remain,” Dimon said.  “Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time. Additionally, geopolitical conditions remain the most dangerous and complicated since World War II. As always, we hope for the best but prepare the firm for a wide range of scenarios.”  CFO Jeremy Barnum said that net interest income for 2025 would be about $94B.  The stock went up 3.28.

JPMorgan Chase posts record profit as the bank’s massive scale pays off

The  10-year Treasury yield dropped as investors parsed key inflation data.  The 10-year yield fell around 14 basis points to 4.651%, further pulling back from the 14-month high reached yesterday.  The yield on the 2-year Treasury retreated by about 10 basis points at 4.27%.  One basis point is equal to 0.01% & yields & prices move in opposite directions.  Bond yields took a leg down after core inflation in the consumer price index, which excludes volatile food & energy prices, slowed to 3.2% on an annualized basis in Dec.  This data comes a day after the producer price index showed wholesale prices rose less than expected in Dec, easing investor concerns over a resurgence in inflation.  However, the data did not alter market expectations for the Federal Reserve to hold interest rates steady at its Jan 28-29 meeting.   Later in the week, investors will turn attention to figures on retail sales & housing starts.

10-year Treasury yield pulls back aggressively after core inflation is light in December

US stocks rallied as high hopes for bank earnings paid off & a crucial consumer inflation update reported prices increased less than expected in Dec.  Stocks took a leg higher after the CPI showed progress toward the Fed's 2% inflation target in Dec.  The  annual core CPI had been stuck at a 3.3% gain for the 4 months.   Dec was the first time since Jul that the metric reflected a deceleration in price growth.