Inflation data, banks kick off earnings season: 1/9/2023 - 1/13/2023

Data on consumer prices will provide hints about the Federal Reserve's upcoming policy decision, while quarterly reports from major banks will start the fourth quarter earnings season.

Markets

• Dow Jones: 33,630.61 (+2.13%) 📈

• S&P 500: 3,895.08 (+2.28%) 📈

• Nasdaq: 10,569.29 (+2.56%) 📈

  *Stock numbers as of market close on January 6th

This week, when investors are faced with a much-anticipated inflation number and the start of the fourth quarter results season, which will be dominated by big banks, a stock market rise to start 2023 will be tested.

Consumer Price Index (CPI) data for December will be released on Thursday morning. This data will likely determine whether the Federal Reserve raises interest rates by 0.25% or 0.50% at the beginning of next month.

According to data from Bloomberg, economists anticipate that the headline CPI increased 6.6% over the previous year in December, which is a decrease from the 7.1% increase witnessed in November. The CPI most likely remained unchanged month over month.

The Fed regularly monitors core CPI, which excludes the erratic food and energy components of the index, and is predicted to have increased at a slower rate last month, coming in at 5.7% following a 6% increase in November. Following a 0.2% increase in November, core CPI is predicted to increase by 0.3% over the previous month.

Policymakers pay closer attention to "core" inflation since it takes a more nuanced look at important inputs like housing, whereas this year's headline CPI has generally moved in lockstep with volatile energy prices.

On Friday morning, as the fourth quarter earnings season begins, JPMorgan (JPM), the biggest consumer bank in the United States, will also present its quarterly financial results alongside competitors Citigroup C 0.00%↑, Bank of America BAC 0.00%↑, and Wells Fargo WFC 0.00%↑.

Banks on Wall Street are likely to provide unsatisfactory results to the Street after issuing dire warnings about the status of the economy, seeing sharp declines in dealmaking revenues, and even starting to reduce their workforces.

Another 'encouraging' jobs report

After the most recent monthly jobs data revealed that nonfarm payrolls increased by 223,000 in December and the unemployment rate decreased to 3.5%, U.S. markets jumped on Friday.

Investors cheered a slowdown in wage growth as a sign that the Fed may pull down its rate-hiking plans, although this data indicates that there is still a labor supply and demand imbalance.

The technology-heavy Nasdaq Composite rose 1%, while the S&P 500 and Dow Jones Industrial Average each increased by about 1.5% for the week. On Friday, all three major averages increased by more than 2%.

The first rate increase of 2023 and the eighth of the current hiking cycle will be announced at the January 31–February 1 meeting of the Federal Open Market Committee (FOMC), the body of Fed officials that votes on policy adjustments. The Federal Reserve increased interest rates by 50 basis points last month, bringing the total number of rises to 4.25% for 2022.

WASHINGTON, DC - SEPTEMBER 21: U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference.

Bank earnings lead the way

Before the market opens on Friday, a flurry of financial institutions, including JPMorgan, Citigroup, Bank of America, and Wells Fargo, as well as the asset management giant BlackRock BLK 0.00%↑, will all release their quarterly results.

Banks often gain from tightening central bank policy, with higher interest rates increasing their net interest income and net interest margins. Net interest income is the difference between a bank's earnings from lending activities and the interest it pays to depositors. However, difficult market conditions that have hurt dealmaking, a key source of profits, are poised to counteract other facets of their operation.

Any information that credit card balances and savings accounts may provide about the state of American customers will be a noteworthy addition to the bank's profitability.

The "excess savings" for American households, according to data released last week by JPMorgan Asset Management, the bank's investment management division, are currently anticipated to be $900 billion, down from a peak of $2.1 trillion in early 2021 and around $1.9 trillion at the beginning of last year. The decrease demonstrates that half of the savings Americans had built up since the pandemic started have been effectively destroyed by inflation.

UNITED STATES - SEPTEMBER 22: Jamie Dimon, CEO of JPMorgan Chase, arrives for a Senate Banking Committee hearing.

Even Jamie Dimon, the CEO of JPMorgan, expressed concern in a recent interview that inflation could push the American economy into a recession this year.

Regarding consumer balance sheets, which have held up thus far, Dimon stated, "Inflation is eroding everything I just said, and that trillion and a half dollars will run out sometime midyear next year."

Investors will also receive readings on import and export prices, a gauge of real average hourly earnings, and a consumer mood assessment from the popular University of Michigan poll.

Additionally, noteworthy updates are expected from Bed Bath & Beyond BBBY 0.00%↑, which announced last week that it was in financial trouble, Delta Air Lines DAL 0.00%↑, and UnitedHealth UNH 0.00%↑.

Events Calendar

Monday, January 9

• Consumer Credit, November ($25.000 billion expected, $27.078 billion during the prior month)

• Acuity Brands AYI 0.00%↑, AZZ AZZ 0.00%↑, Commercial Metals CMC 0.00%↑, PriceSmart PSMT 0.00%↑, Tilray TLRY 0.00%↑, WD-40 WDFC 0.00%↑

Tuesday, January 10

• NFIB Small Business Optimism, December (91.4 expected, 91.9 during the prior month)

• Wholesale Trade Sales, month-over-month, November (0.4% during the prior month)

• Wholesale Inventories, month-over-month, November Final (1.0% expected, 1.0% during previous month)

• Albertsons ACI 0.00%↑, Bed Bath & Beyond BBBY 0.00%↑

Wednesday, January 11

• MBA Mortgage Applications, the week ended Jan. 6 (-10.3% during the prior week)

• KB Home KBH 0.00%↑, Shaw Communications SJR 0.00%↑

Thursday, January 12

• Consumer Price Index, month-over-month, December (0.0% expected, 0.1% during prior month)

• CPI excluding food and energy, month-over-month, December (0.3% expected, 0.2% during prior month)

• Consumer Price Index, year-over-year, December (6.6% expected, 7.1% during prior month)

• CPI excluding food and energy, year-over-year, December (5.7% expected, 6.0% during prior month)

• Real Average Hourly Earnings, year-over-year, December (-1.9% during the prior month, revised to -2.1%)

• Real Average Weekly Earnings, year-over-year, December (-3.0% during the prior month, downwardly revised to -3.3%)

• Initial jobless claims, the week ended Jan. 7 (214,000 expected, 204,000 during the prior week)

• Continuing claims, the week ended Dec. 31 (1.694 million during the prior week)

• Taiwan Semiconductor Manufacturing TSM 0.00%↑

Friday, January 13

• Import Price Index, year-over-year, December (2.2% expected, 2.7% during prior month)

• Import Price Index, month-over-month, December (-0.7% expected, -0.3% during prior month)

• Import Price Index excluding petroleum, month-over-month, December (-0.3% expected, -0.3% during prior month)

• Export Price Index, year-over-year, December (6.3% during the prior month)

• Export Price Index, month-over-month, December (-0.7% expected, -0.3% during prior month)

• University of Michigan Sentiment, January Preliminary (60.5 expected, 59.7 prior reading)

• Delta Air Lines DAL 0.00%↑, JPMorgan JPM 0.00%↑, Citigroup C 0.00%↑, Bank of America BAC 0.00%↑, BlackRock BLK 0.00%↑, First Republic Bank FRC 0.00%↑, Wells Fargo WFC 0.00%↑, UnitedHealth UNH 0.00%↑

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