Jump to content

S&P 500 Shrugs Off Red-Hot Inflation & Ekes Out Small Gain, Banks’ Earnings in Focus

Recommended Posts


  • U.S. CPI rises at the fastest face since 1982 and hits 7% y/y in December, but fails to spark a negative reaction in risk assets
  • Mounting inflationary pressures, however, can pave the way for aggressive monetary tightening, setting the stage for S&P 500 weakness in the short-term
  • Market attention will now turn to the official start of the earnings season, with big banks due to kick-off the cycle on Friday

Most read: Everything You Need to Know About Types of Stocks

U.S. stocks advanced on Wednesday, but the strong recovery momentum seen on Tuesday took a breather amid investor caution on mounting inflationary forces in the economy. At the market close, the S&P 500 climbed 0.28% to 4,726, but finished the day off its highs as risk appetite slowly dwindled throughout the trading session. The Nasdaq 100 also rose, clambering 0.38% to 15,905. Elsewhere, the Dow Jones underperformed its peers, eking out a 0.11% gain to end the day at 36,290.

Key data released in the morning showed December headline CPI increasing at the fastest pace since 1982, up 7% y/y from November’s 6.8% y/y. The core gauge, which excludes volatile food and energy components, also accelerated, rising from 4.9% y/y to 5.5% y/y, the hottest reading since 1991. Initially, the consumer price index report triggered a knee-jerk reaction to the upside among risk-assets, but the move faded over the hours as Wall Street began to digest the alarming results and their potential ramifications for monetary policy.

Broadening inflationary pressures, especially in sticky components such as shelter, should reinforce bets that the Fed will act quickly and aggressively to withdraw support in the current normalization process. We probably didn’t see that kind of repricing today because investors had front-run the FOMC in recent weeks, driving Treasury prices lower and yields significantly higher already. For instance, the 10-year yield has risen more than 22 bps and the 2-year almost 18 bps in less than 10 trading days. However, after a pause and some consolidation, rates may begin move up again soon, weighing on stocks with lofty valuations in the growth and tech space. In this environment, the Nasdaq 100 and S&P 500 will struggle and should underperform value-leaning indices such as the Dow Jones.

Focusing on other near-term catalysts, the fourth quarter earnings cycle will take center stage in the coming days. Financial heavyweights will kick off the season in earnest towards the end of the week, with JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK) and First Republic (FRC) all announcing results on Friday before the opening bell. Banks are a bellwether for the economy, so traders should pay particular attention to forward guidance relating to loan activity and net interest margins against a backdrop of rising rates. If they sound bullish on those two key metrics, financials can continue to command strength over the medium term, lifting other cyclical proxies in their slipstream.

Below is a summary of Friday's main corporate results to keep an eye on

S&P 500 Shrugs Off Red-Hot Inflation & Ekes Out Small Gain, Banks’ Earnings in Focus

Source: Nasdaq


After Tuesday’s strong rally, follow-through buying momentum weakened on Wednesday, preventing the S&P 500 from clearing technical resistance at 4,750. If the index fails to breach this barrier decisively in the coming sessions, bearish pressure could begin to build, paving the way for a move towards trendline support near the 4,600 psychological area. On the other hand, if bulls retake resolute control of the market and push the price above 4,750 decisively, the S&P 500 could be on track to reclaim its all-time at 4,818.


S&P 500 Shrugs Off Red-Hot Inflation & Ekes Out Small Gain, Banks’ Earnings in Focus

S&P 500 (SPX) Chart by TradingView


  • Are you just getting started? Download the beginners’ guide for FX traders
  • Would you like to know more about your trading personality? Take the DailyFX quiz and find out
  • IG's client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.


Diego Colman, Market Analyst, DailyFX
13 January 2022

  • Like 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
  • Create New...