The Daily Breakdown examines the stock market after the CPI report created some questions around inflation.
Friday’s TLDR
- The S&P 500 hovers near all-time highs.
- JPMorgan, Citi, BofA and Wells Fargo report earnings.
- Johnson & Johnson looks for a strong start to 2024.
- Bitcoin hits 52-week highs.
What’s happening?
Before the open, the CPI report showed that inflation came in a little hotter than economists expected. At first, markets shrugged off the news, with the S&P 500 climbing to new 52-week highs.
However, the index was quick to roll over — dipping almost 1% at the intraday lows — before bouncing back in the afternoon, closing lower by less than 0.1%.
It’s got investors wondering what stocks will do from here.
Will the hotter-than-expected inflation report temper rate-cut bets, causing stocks to pull back? Or was Thursday’s buy-the-dip mentality a preview of what’s to come, as the S&P 500 still lingers less than 1% below its all-time high?
Bonds could act as a clue.
The TLT — the most traded long-term government bond ETF — initially traded lower this morning, while 10-year yields rallied. However, this action reversed by the end of the day, with bonds ending higher on the day and rates ending lower.
While the TLT is still down about 4% from its recent high, renewed strength in bonds — and thus, weakness in yields — would reaffirm the bond market’s bet that lower rates from the Fed are on the way. Keep an eye on this.
And don’t forget, earnings will likely play a major role in whether the S&P 500 can hit new all-time highs in the near term (or not), with the banks set to kick things off this morning.
The setup
We continue to see strength in healthcare, which is the top-performing sector in the S&P 500 so far this year. Additionally, the XLV — a well-known ETF for healthcare stocks — is up 3.3%.
Johnson & Johnson is the third-largest holding in the XLV, behind Eli Lilly and UnitedHealth Group.
For its part, J&J enjoyed a 2.1% gain on the first trading day of the year, which helped vault it over the December high. In doing so, the stock also regained its 200-day moving average, closing above this measure for the first time since August.
As shares continue to consolidate, bulls may be keeping an eye on the $160 level.
Not only does that level come into play near the December high, it’s been recent support. It’s also where the 10-day and 200-day moving averages come into play.
If the stock can hold this area, then bulls might turn their attention back to the recent high near $163. Above that, and perhaps the $167 to $168 area could eventually be in play.
Conversely, a close below $160 could open the door to a larger pullback, possibly into the mid-$150s.
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What Wall Street is watching
JPM: Bank stocks will kick off earnings season this morning, with JPMorgan, Bank of America, Citigroup, and Wells Fargo among some of the names scheduled to report. Of the group, JPMorgan is by far the largest, with a market cap of almost $500 billion.
AMZN: Amazon is in focus amid more job cuts, as reports say its Audible unit will look to cut about 5% of its workforce. This follows workforce reductions at Twitch — another Amazon division — and reports of job cuts coming from Prime Video.
BTC: Bitcoin prices hit an all-time high on Thursday, as investors continue to digest the SEC’s approval of 11 spot Bitcoin ETFs. While Bitcoin did pull back after hitting new highs, many investors consider the ETF development another step in the right direction.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.