Weekly Update 01/16/2025: Our offices will be closed on Monday, January 20, in observance of Martin Luther King, Jr. Day. The equity and bond markets will also be closed. We will reopen during normal business hours on Tuesday, January 21.
- JNJ makes acquisition
- JP Morgan reports strong trading results
- Wells Fargo earnings emphasize cost controls
CPI & PPI
This week, two key inflation measures were updated. The producer price index (PPI) from the Bureau of Labor Statistics (BLS) revealed that wholesale prices unexpectedly cooled in December. A drop in food costs and flat services prices were the main causes of the tepid reading. PPI rose 0.2% from a month earlier, that was below the 0.4% median estimate from Wall Street. The measure rose 3.3% compared to a year earlier. When food and energy categories are excluded, the so-called core rate rose 3.5%, the highest since February 2023. Airfares jumped by the most since March 2022 but there was no change in hospital care—two key categories that feed into the Fed’s preferred inflation measure—the personal consumption expenditure index. Goods prices overall rose 0.6% in December while services prices overall were unchanged.
The consumer price index (CPI) released yesterday by the BLS showed that consumer prices, too, rose in December but less than forecast. After four consecutive months of 0.3% growth, the core reading, which excludes food and energy, last month showed a 0.2% rise. Wall Street was expecting another 0.3% increase. A smaller advance medical care services and modest rent increases drove the index to below expected levels. Year-over-year, the core CPI rose 3.2%, slightly below the 3.3% rise in November. The overall measure rose 2.9%, which was in line with consensus expectations derived from a survey taken by Bloomberg. With energy prices accounting for more than 40% of the increase in the overall level thanks to that category’s 2.6% rise last month. It is no surprise that fuel oil and propane both saw their biggest monthly advances in a year with Arctic temperatures hitting a good portion of the country last month.
What did the tamer inflation figures mean for the markets? Stocks reacted positively but basically made up ground it lost in previous sessions when it feared poor inflation numbers. The major indices are now showing slight gains for 2025. The odds of a Federal Reserve rate cut moved slightly higher with the chance of a June cut rising to 41% from 30% on Monday before the PPI and CPI data was released. Bottom line, the Fed is going to need to see more than one month of positive data before considering cuts so stay tuned.
Consumer and labor data
The Labor Department reported that initial unemployment claims in the week ending January 11 rose by 14,000 to 217,000. That was above the consensus estimate of 210,000. Claims increased the most in Michigan, California and Texas while declining the steepest in New York, Washington and Wisconsin. Continuing claims in the week ending January 4 went in the other direction, declining by 18,0000 to 1.859 million. Challenger, Gray & Christmas, which began tracking job cuts in 1993, reported that layoffs eased in December compared to announcements in November. In fact, December’s total of 38,792 announced layoffs was the lowest since July’s figure. For all of 2024, there were 761,358 announced layoffs, a 5.5% increase from 2023.
Consumers were still in the spending mood according to the retail sales report from the Commerce Department. The value of retail purchases rose 0.4% after an upwardly revised 0.8% gain in November. Excluding spending on autos and gasoline, sales rose 0.3%. So-called control-group sales, which the government uses as an input to calculating gross domestic product, climbed 0.7% last month, the most in three months. Control-group sales exclude food services, auto dealers, building materials stores and gas stations. Headline retail sales were below above the consensus figure of a 0.6% gain while control-group sales were above the consensus of +0.4%. The main takeaway is the consumer remained firm during the holiday season thanks to rising wages which surpassed inflationary trends leading to more spending power. The question is if this trend is sustainable? Or was it fueled by a desire for consumers to purchase before potential tariffs are imposed on their favorite goods? While both consumer and business sentiment have risen since the election, it remains to be seen if inflationary expectations may cull future sales. Control-group sales rose at a 5.4% annualized pace in the latest three months, suggesting that fourth quarter GDP will be solid. How the Fed interprets this data at their next scheduled meeting, on January 29, will be what investors and traders will keenly focus on.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
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