U.S. Indexes May Face Inflation Wall In Months Ahead After Solid Market Advance In Previous Session

Barry Adams
16 Jan, 2025
New York City

Wall Street indexes lacked direction in early trading following the best one-day increase since November, after banks reported strong quarterly results and a cooler inflation report. 

The S&P 500 index edged up a fraction, and the Nasdaq Composite traded slightly lower, and investors reviewed the strong advances in tech stocks in the previous session. 

Investors may have to revise their inflation outlook in the months ahead, as the services inflation and wage gains across all industries are expected to stay closer to 4%, fueling inflationary forces. 

The Federal Reserve is more likely to walk back from its current estimate of a rate cut totaling 200 basis points in 2025 if overall and core inflation fails to dip below 3%. 

Costs of shelter and transportation services in December jumped 4.6% and 7.3%, respectively, and they have consistently been above the Fed's target rate for overall inflation of 2%. 

The Fed's monetary policy has largely been ineffective in controlling or impacting these two key drivers of inflation in recent years. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.1% to 5,951.26, the Nasdaq Composite fell 1.6% to 19,504.18, and the Russell 2000 index inched down by 0.1% to 2,259.09. 

The yield on 2-year Treasury notes edged up to 4.31%, 10-year Treasury notes inched down to 4.69%, and 30-year Treasury bonds declined to 4.90%.

WTI crude oil decreased $0.64 to $79.43 a barrel, and natural gas prices edged up 4 cents to $4.13 a thermal unit.

Gold increased by $6.70 to $2,701.77 an ounce, and silver fell by $0.07 to $30.58. 

The dollar index, which weighs the US currency against a basket of foreign currencies, decreased by 0.24 to 109.31 and traded at a two-year high. 

 

U.S. Stock Movers 

Bank of America increased 0.5% to $47.10 after the financial service company reported better-than-expected revenue and earnings in the fourth quarter. 

Morgan Stanley advanced 1% to $131.79 after the investment and asset management company reported higher-than-expected revenue and earnings in the fourth quarter. 

The company benefited from a rise in its investment banking fees and a surge in fixed income trading revenue. 

Target Corp. declined 0.8% to $133.52 after the big-box retailer raised its sales outlook in the fourth quarter. 

The retailer said comparable sales are likely to increase 1.5% in the fourth quarter, compared to the previous estimate of flat. 

The company left its earnings estimate unrevised for the quarter and the full year, indicating customers were driven by promotions and deals during the holiday period. 

The retailer anticipated earnings per share in the fourth quarter between $1.85 and $2.45 and for the full year between $8.30 and $8.90. 

Target said it will release detailed financial results on March 4. 

UnitedHealth Group decreased 3.5% to $525.0 after the health insurance company reported mixed quarterly results. 

Total revenue in the quarter was $100.81 billion, and adjusted earnings per share were $6.81. 

The annual medical cost ratio, the percentage of collected premiums spent on medical care costs, increased to 85.5% from 83.2% in 2023. 

The company reaffirmed its annual earnings per share in 2025 between $29.50 and $30.0, confirming its previous estimate released in December.