January 15, 2025

The market struggled to end higher yesterday on a late comeback, as some negative news impeded what should have been a better showing from the latest December P.P.I. report.

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The Dow once again did better than the broader market indices as buying in some out-of-favor stocks did the trick with a 221-point advance to 42,518 on gains in CAT in addition to GS and JPM ahead of their earnings reports this morning.

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The S&P did not do too well as a 35-point higher start gave way to a weak 31-point afternoon decline before a very late rally resulted in a 6-point closing advance to 5843 as once again it was that weakness in most of the large technology stocks that held things back as most of the former big leaders are down by at least 10%.

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The Nasdaq followed the same pattern with a strong gain of 185 dissipating into a decline of as much as 162 before cutting that disaster into a closing loss of 44 down to 19,044. This entire episode was a function once again of those former technology leaders showing their weakness day after day after that promising start.

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The Russell 2000 Index of small stocks ended higher by 24 to 2219 as financials did better and the VIX dropped to 18.71 on those gains in the Dow and S&P.

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The December P.P.I. came in lower than expected with gains of 0.2% month and unchanged for the ex-food and energy components. This should have been better news for the S&P and Nasdaq, but current negativity over the large technology issues ruled the day for those two items.

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There was further negativity from once high-flying LLY which suffered its worst one-day decline since 2023 as it fell after saying it expects to report weaker revenue for the last three months of 2024 than previously forecast.

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Its CEO said last quarter’s 45% growth in Lilly’s revenue for its Mounjaro diabetes treatment, Zepbound obesity injections and other products in the incretin market wasn’t as big as expected.

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High readings on inflation and a series of better-than-expected gains for the economy have sent investors into a weeks-long rut from the dozens of all-time highs set last year. The fear is that all the strong data will convince the Federal Reserve to deliver less relief this year through lower interest rates.

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The Fed has already hinted that it is likely to cut rates just two times in 2025, down from an earlier projection of four. Speculation is growing about whether the Fed may not cut rates at all in 2025.

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Such questions have sent Treasury yields sharply higher in the bond market, which hurts the stock market. Yields slowed their ascent following the update on wholesale inflation.

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The yield on the 10-year Treasury held at 4.78%, where it was late Monday. It was below 3.65% in September.

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The two-year Treasury yield, which more closely tracks expectations for Fed action, eased to 4.36% from 4.39%.

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KBH rose after delivering a better profit for its latest quarter than analysts expected. The rise in Treasury yields has made mortgages more expensive, but its CEO said buyers nevertheless “continued to demonstrate a desire for homeownership and housing market conditions improved relative to last year.” He also added that faster build times helped the company deliver more homes in the three months through November.

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HEES more than doubled to top $90 after URI said it will buy its smaller rival for $92 per share in cash. The deal values H&E, which rents aerial work platforms, earthmoving equipment and other products, at $4.8 billion, including roughly $1.4 billion of net debt.

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On the losing end of the market was SIG, which tumbled by 22%. The diamond seller said its sales in the peak shopping days leading up to Christmas this past holiday season were below its forecasts. Shoppers were focusing on lower-priced fashion gifts “even more than anticipated in a continued competitive environment,” said its chief financial and operating officer.

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In stock markets abroad, indexes were higher across much of Europe and Asia with a few exceptions. Japan’s Nikkei 225 index fell 1.8% following a holiday on Monday, but indexes were much stronger in China where stocks rose 1.8% in Hong Kong and 2.5% in Shanghai.

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Crude oil prices fell to give back some of their strong gains in recent weeks, which had also been cranking up the pressure on inflation.

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Benchmark U.S. crude eased 1.7% to $77.50 per barrel. Brent crude, the international standard, fell 1.3% to $79.92 per barrel.

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This week is the start of the 4Q earnings season and is important to perhaps set the tone for what is coming; yesterday – KBH higher and LLY, SIG lower; today – BLK, C, WFC and Dow components GS and JPM higher; Thursday – BAC, JBHT, MS and Dow component UNH; Friday – FAST, SLB and SST.

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Economic reports will see: yesterday – December PPI came in cooler than expected with a 0.2% month over month advance and unchanged for ex-food and energy; today – December CPI rose by 0.4% and 2.9% for the year and the ex-food and energy component gained 0.2% and 3.2% for the year; Thursday – December retail sales, weekly jobless claims; Friday – December housing starts, December capacity utilization and industrial production.

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The combination of more friendly C.P.I. and the better bank earnings will lead finally to a much better start this morning, and the question is – can things hold at the higher levels instead of selling off as unfortunately has taken place so often. If things go the distance, that would help the weakness lately, especially in the large tech issues which have done poorly.