1. Moving the market

Equities saw a bounce but ultimately pulled back during the session following yesterday’s strong advances, as traders analyzed the latest earnings reports.

Banks such as Bank of America and Morgan Stanley saw gains after surpassing expectations, like their peers JP Morgan and Goldman Sachs from the previous day. This earnings season is off to a promising start, with 77% of reporting companies exceeding their outlooks.

Traders are still energized from yesterday’s strongest session since November, where all major indexes posted solid gains, driven by a moderate improvement in core inflation. Let’s hope these figures are accurate and not subject to revision.

Federal Reserve Governor Waller provided some reassurance, suggesting that if incoming inflation data continues this path or improves, rate cuts could happen sooner than the market anticipates.

On the economic front, retail sales disappointed, jobless claims soared to three-year highs, but the Philly Fed Manufacturing Index surged in January, marking the biggest month-over-month jump since COVID-19 and the second-highest level in 40 years, according to ZH.

Bond yields slipped again, but the dovish sentiment in rates wasn’t enough to push the major indexes into the green, despite another short squeeze lifting Small Caps.

The dollar traded sideways, while gold surged higher, closing above $2,700—its highest level since the election. Bitcoin, after dropping below $90 a few days ago, reversed course and surged back above $101,000 today.

After this recent rollercoaster ride, is Bitcoin now on its way to a new all-time high?

1. Moving the market

This morning, the markets received a significant boost, with all indexes advancing broadly as inflation fears seemed to dissipate. The latest Consumer Price Index (CPI) report revealed that core inflation unexpectedly slowed in December. Major banks also kicked off the earnings season with impressive results, further fueled by a massive short squeeze.

December’s CPI showed that core inflation, which excludes food and energy, rose by 3.2%. This was slightly lower than the previous month and below the estimated 3.3%. However, the month-over-month headline inflation number came in just above the 0.3% forecast.

Traders were relieved by yesterday’s Producer Price Index (PPI) report and today’s CPI report, concluding that any additional rate hikes by the Federal Reserve are now off the table, a sentiment that some market participants had already priced in.

Bond yields retreated sharply, with the 10-year yield, which had been on a relentless upward trend since the Fed lowered rates, reversing course and dropping 14 basis points to close the session at 4.66%.

The fourth-quarter earnings season began with major banks like JP Morgan, Goldman Sachs, Wells Fargo, and Citibank all beating expectations. Bank earnings are crucial as the financial sector is closely tied to the general economy.

The mega-cap sector surged, recouping Friday’s losses, with the Nasdaq experiencing its best day since early November. The dollar closed lower after fluctuating wildly throughout the day.

Meanwhile, Bitcoin surged back above $100,000, and gold rallied to Monday’s highs, joined by crude oil, which broke above $80 for the first time since August.

Despite these positive developments, inflation remains a concern, raising the question in my mind: Does this exuberant rebound have any legs to stand on?

1. Moving the market

The major indexes received a boost early this morning from a better-than-expected Producer Price Index (PPI) report. Despite the tech sector suffering most of the losses yesterday and last week, it managed to advance today, although it dropped below its unchanged line by the close.

The PPI, which represents wholesale inflation, increased by 0.2% in December, compared to estimates of 0.4%. Year-over-year, the PPI surged from 3.0% to 3.3%. The Core PPI, which excludes food and energy, remained unchanged.

Tomorrow’s Consumer Price Index (CPI) reading is expected to have a more significant market impact. If the CPI comes in hotter than anticipated, the Federal Reserve may slow down any interest rate cuts, which typically does not bode well for stocks. Despite current conditions, there is a 78% chance that the Fed will maintain its current rate policy when they meet later this month.

Today was another volatile day in the markets, with indexes fluctuating above and below their respective unchanged lines. Small Caps emerged as the top performers, while the Nasdaq lagged.

The S&P 500 hovered around its 100-day moving average, and Mega Caps dropped for the sixth consecutive day. Bond yields were mixed, with the 10-year yield eking out a small gain, while the 30-year yield crossed the 5% level to the upside for the first time since November 2023.

The dollar tumbled, which helped gold to achieve a modest advance of +0.44%. Bitcoin, after breaking below $90k yesterday, found some footing and surged towards $97k, while crude oil prices dipped below $78.

We witnessed wild swings throughout the session, with bulls and bears engaged in a tug-of-war. Will tomorrow’s crucial CPI report declare a winner?

1. Moving the market

Tech shares, which were the stars of last year’s bull run, faced significant losses this morning as last week’s sell-off continued. The Nasdaq led the decline, while the Dow remained in positive territory. However, a slow and steady climb helped the S&P 500 close in the green.

Some of the most popular tech leaders in the bull market, such as Nvidia and Palantir, dropped more than 2% each after falling 6% and 11% last week. Micron and Tesla also traded lower.

Surging bond yields have been the catalyst for the decline in growth-oriented stocks, with the 10-year yield rising steadily since the Fed adopted a dovish policy stance. In other words, the markets are not convinced by the Fed’s approach.

If the 10-year yield reaches the 5% mark, equities will face a significant challenge in maintaining upward momentum. This could signal the end of the current bull market cycle unless rates stabilize.

This situation could also be a short-term correction, with traders hoping that the upcoming earnings season will provide a much-needed boost to the struggling markets. The banking sector will kick off earnings reports this Wednesday.

Tomorrow’s Producer Price Index (PPI) and Wednesday’s Consumer Price Index (CPI) will also impact the markets, potentially stabilizing them or increasing bearish momentum.

Money market funds have seen a $165 billion inflow over the past three weeks, the largest since March 2023, indicating a lack of support for risky assets. Banks have been the victims of this move, experiencing a significant drawdown in deposits.

The mega-cap sector started the session with a plunge but managed to rally off their lows. The biggest loser of the day was Edison, which faced multiple lawsuits due to the LA fires.

Bond yields continued their upward trajectory, with the dollar maintaining its strength, causing gold to fall below the $2,670 level. Bitcoin temporarily dropped below $90k but rebounded strongly towards $94k.

Crude oil extended its recent gains and settled above $78. Does this mean that prices at the pump will follow?