Market Overview

The stock market experienced a rally following favorable inflation data from the December Consumer Price Index (CPI) report. The S&P 500 increased by 1.8%, trading above its 50-day moving average of 5,957 at its session high before closing just below this key technical level. The CPI report indicated a decrease in the year-over-year rate in core-CPI to 3.2% from 3.3%.

Bond Market Reaction

The bond market responded to the inflation data with the 10-year yield, which is highly sensitive to inflation changes, decreasing by 14 basis points to 4.65%. The 2-year yield dropped ten basis points to 4.26%, and the 30-year bond yield fell 11 basis points to 4.88%, down from just below 5.00% the previous day.

Sector Performance

Broad-based buying interest in the stock market was supported by strong earnings results from major financial sector players, along with short-covering activity that spurred additional buying in the bond market. JPMorgan Chase (JPM) rose by 2.0% to 252.35, and Citigroup (C, Financial) increased by 6.5% to 78.27, both achieving new 52-week highs after surpassing earnings expectations.

The S&P 500 financial sector saw a gain of 2.6% compared to the previous day's close. The consumer discretionary sector increased by 3.0%, communication services by 2.7%, and information technology by 2.2%, indicating a rebound in mega-cap stocks. Conversely, the defensive-oriented consumer staples sector slightly declined by 0.1%, and the health care sector edged up by 0.2%.

Index Performance

• S&P Midcap 400: +2.6% YTD
• Dow Jones Industrial Average: +1.6% YTD
• Russell 2000: +1.5% YTD
• S&P 500: +1.2% YTD
• Nasdaq Composite: +1.0% YTD

Economic Data Review

• Weekly MBA Mortgage Applications Index: 33.3%; Prior: -3.7%
• December CPI: 0.4% (consensus 0.3%); Prior: 0.3%
• December Core CPI: 0.2% (consensus 0.2%); Prior: 0.3%

The key takeaway from the CPI report is that the results were better than anticipated, which initially overshadowed the fact that consumer inflation remains above the Federal Reserve's 2% target, although this target is linked to the PCE Price Index.

Guru Stock Picks

Steven Romick has made the following transactions:

• Reduce in AON by 1.29%
• Sold out in NSTDW
• Add in ICLR by 23.98%

Jerome Dodson has made the following transactions:

• Reduce in MORN by 1.3%
• Sold out in ALGN
• Add in MELI by 16.16%
• New position in ROK

Parnassus Value Equity Fund has made the following transactions:

• Reduce in INTC by 16.45%
• Sold out in FIS
• Add in UNH by 12.06%
• New position in AMAT

Today's News

Goldman Sachs (GS, Financial) saw a significant rise in its stock price, climbing by 6% as the Dow surged 703 points, or 1.7%, on Wednesday. This comes amidst discussions about the potential early termination of its credit-card partnership with Apple (AAPL, Financial) before the contract's expiration in 2030. Goldman expects improvements in its metrics by 2025 and 2026, driven by the Apple Card's performance. The bank also reported strong Q4 and full-year earnings, supported by solid net interest income.

Pembina Pipeline (PBA, Financial) gained 0.5% after analysts at TD Cowen named it their top pick for Canadian midstream exposure. Despite being fundamentally mispriced and trading below its 10-year EV/EBITDA mean, Pembina offers a robust growth opportunity pipeline. TD analysts highlighted the company's strong capital structure and historical track record, suggesting continued shareholder value delivery. TC Energy (TRP) and Enbridge (ENB) were also rated as Buy by TD, citing favorable portfolio quality and growth.

Citibank (C, Financial) reported a decrease in its credit card delinquency rate to 1.45% in December, down from 1.53% in November. However, its net charge-off rate rose to 2.84%, surpassing the levels from the previous month and five years ago. Lending activity increased, with principal receivables rising to $22.4 billion, indicating a growth in Citibank's credit card business despite the higher charge-off rate.

Southwest Airlines (LUV, Financial) faces potential civil penalties from the Transportation Department for allegedly violating rules on realistic flight schedules. The DOT claims that Southwest has "chronically delayed flights," which are flights arriving more than 30 minutes late more than 50% of the time. This action underscores the department's commitment to enforcing passenger protections.

Taiwan Semiconductor Manufacturing (TSM, Financial) is anticipated to report its largest profit jump since 2022, with analysts expecting earnings per share of $2.22 and revenue of $25.92 billion for Q4. The company saw a 39% year-over-year revenue growth in Q4 2024, driven by high demand for AI applications. Despite the positive outlook, analysts at Needham caution about near-term headwinds.

FTAI Aviation (FTAI, Financial) was defended by Citi after a Muddy Waters short report led to a 24% drop in its shares. Citi analyst Stephen Trent noted that some arguments in the report were difficult to understand and maintained a Buy rating on FTAI. The company is reviewing the report and remains focused on its innovative business model.

EQT (EQT, Financial) and Devon Energy (DVN, Financial) rose by 3.2% and 3.7%, respectively, after Bernstein upgraded both stocks to Outperform. The firm sees an undersupplied natural gas market driving prices above $5/mcf, presenting a unique opportunity for long-term value creation. EQT's extreme leverage to natural gas prices and Devon's domestic focus were highlighted as key factors.

AbbVie (ABBV, Financial) may reduce its investment in psychiatric drug development following its acquisition of Cerevel and the failure of a key drug candidate. Despite this, AbbVie remains open to taking calculated risks in its portfolio, as stated by CEO Robert Michael. The company plans to record a $3.5 billion impairment charge related to the failed drug.

ASML (ASML, Financial) saw a slight decline of 0.8% after the Netherlands announced expanded export controls on advanced semiconductor equipment. Starting April 1, companies will need licenses for certain technologies. Despite the new rules, ASML stated that its guidance will not be impacted.

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