Choppy US equity session after GS and WFC earnings; inflation remains under Fed’s target

Market Summary

Today’s session was a choppy one for US equities, with the S&P 500 closing lower by -0.13%, led down after Goldman (GS) and Wells Fargo (WFC) reported earnings that were largely disappointing to investors. Treasuries rose after reports showed an increase in continuing unemployment claims and inflation that remains below the Fed’s target. Crude oil slipped after OPEC forecast weaker demand, while natural gas advanced as cold weather boosts demand for fuel; cotton and sugar outperformed.

Notable News/Earnings

  • Goldman Sachs (GS) beat on the top and bottom lines, but revenues fell -4.9% y/y to $8.78 bln from $7.73 bln consensus.
    • Trader Tip: It was the typical strong quarter for GS, which has likely been priced in, however, the $0.42 bottom line beat was well below the average $0.73 beat that co has posted over the last three quarters.
  • Citigroup (C) missed on EPS and revenue, reporting the weakest quarter of the big banks by far. Revenues were¬†primarily due to lower U.S. mortgage refinancing activity in North America Global Consumer Banking and a decline in fixed income markets revenues in Securities & Banking.
    • Trader Tip: The big bottom line miss was due in part to the big rise in the tax rate (32% vs 13% in the prior year), and of course as with the other banks, the decline in mortgage originations cost the co dearly this quarter. Keep in mind that C trades at one of the more favorable valuations, 0.8x BVPS.
  • Weekly initial claims fell to 326,000 from a downwardly revised 328,000 (from 330,000); continuing claims level increased to 3.030 million from a downwardly revised 2.856 million (from 2.865 million).
  • Dec consumer prices increased an in-line 0.3% after a flat Nov reading. The move in consumer prices was primarily the result of an upward swing in energy prices.
  • A German High Court ruling over the constitutionality of the European Central Bank’s Outright Monetary Transactions is tentatively scheduled for tomorrow.

Looking Ahead

Tomorrow, Dec Housing Starts and Building Permits will be released at 8:30 EST while Dec Industrial Production and Capacity Utilization will be reported at 9:15 EST. The day’s data will be topped off with the 9:55 EST release of the preliminary University of Michigan Sentiment survey for January.