(Jan 14): Wall Street traders sent stocks lower as inflation data failed to alter bets on a pause in US Federal Reserve (Fed) rate cuts while JPMorgan Chase & Co led a slide in banks after its results. Bonds wavered. The dollar rose.
Signs that price pressures are gradually abating gave a degree of comfort to investors in the immediate aftermath of the data, but the moves across asset classes waned as the session progressed. The S&P 500 fell from a record. JPMorgan sank 4.2% as investment-banking fees missed the guidance, with revenue from both underwriting and advising on mergers dropping.
Not even a slower-than-expected increase in the core consumer price index (CPI) was able to sustain the advance in Treasuries that followed the data. After Fed chair Jerome Powell and his colleagues deployed three rate cuts since September, money markets continued to project the next reduction only in mid-2026.
“The initial excitement sparked by a cooler-than-anticipated core CPI was short-lived,” said Jose Torres at Interactive Brokers. “The reversal was influenced, in part, by the report’s failure to pull forward the next expected rate reduction from June to April, as fixed-income watchers project Powell’s December cut will be his last at the helm.”
With low unemployment, growth running above trend, fiscal stimulus providing an offset, and inflation remaining above target, the Fed can comfortably keep rates on hold this month and likely over the next few meetings, noted Seema Shah at Principal Asset Management. But as inflation concerns ease, the Fed is likely to shift towards a stance where one or two more cuts can be justified.
“As a cooling jobs environment persists, inflation may not be as much of a constraint when it comes to interest rate policy,” said Bret Kenwell at eToro. “However, the report should do little to rock the boat for equity investors, who are likely to turn their attention to the start of earnings season.”
See also: Goldman Sachs looking to sell at least US$12 bil in bonds — Bloomberg
Following JPMorgan’s results on Tuesday, earnings from megabank rivals Bank of America Corp, Wells Fargo & Co, Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley are slated for Wednesday and Thursday. The group is expected to post its second-highest annual profit ever, boosted by US President Donald Trump’s policy changes.
Traders are also mindful of the potential for a US Supreme Court ruling on Wednesday on tariffs the White House has been enforcing this year. An adverse ruling could draw a negative market reaction, even as the administration has alternative legal avenues for most of the levies.
The S&P 500 fell to around 6,965. The yield on 10-year Treasuries was little changed at 4.17%. The dollar rose 0.2%. Oil climbed after Trump amped up rhetoric over Iran.
See also: S&P 500 posts first back-to-back loss of 2026 after PPI data
The December core CPI, excluding the often volatile food and energy categories, increased 0.2% from November. On an annual basis, it advanced 2.6%, matching a four-year low.
The reading is perhaps a more convincing sign that inflation is on a downward path, since a number of caveats in November’s report contributed to a significant pullback in the annual core CPI.
“Given the quirks of November’s dual-month report, it’s surprising not to see more numerous large month-over-month readjustments,” said Stephen Kates at Bankrate. “Consumers can breathe a sigh of relief that we didn’t snap back to the 3% annual inflation rate. Although today’s reading doesn’t demonstrate additional progress for inflation, it doesn’t take a step backwards either.”
While this is good news for investors worried about inflation reaccelerating in December, the latest data probably won’t have much influence on Fed policy given the coming change in leadership, noted David Russell at TradeStation.
Trump criticised Powell as either “incompetent” or “crooked” after a Justice Department probe into the central bank’s headquarters renovation sparked backlash across Washington.
“He’s billions of dollars over budget, so, either he’s incompetent or he’s crooked,” Trump told reporters on Tuesday as he departed the White House for an economic speech in Detroit. “I don’t know what he is, but he certainly doesn’t do a very good job.”
Nothing in the latest CPI report suggests the Fed needs to act immediately on interest rates, according to Jason Pride at Glenmede. He says policymakers are likely to remain on hold later this month, giving them time to digest incoming data and allow shutdown-related distortions to fade.
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Looking ahead to 2026, one or two rate cuts remain a reasonable base case, contingent on how the balance between labour-market conditions and inflation evolves, he added.
“We have seen this movie before — inflation isn’t reheating, but it remains above target,” said Ellen Zentner at Morgan Stanley Wealth Management. “There’s still only modest pass-through from tariffs, but housing affordability isn’t thawing. Today’s inflation report doesn’t give the Fed what it needs to cut interest rates later this month.”
While we’re still unlikely to get another cut from the Fed in the first quarter thanks to more solid jobs data, the lower inflation print will allow the central bank to continue focusing on labour-market risks, noted Sonu Varghese at Carson Group.
“We expect the Fed to pause this month and possibly in March,” said Jeff Roach at LPL Financial. “However, by the time the Committee convenes in April and June, conditions will likely warrant another cut in rates. For now, the balance of risks tilt toward the weakening labor market. Hence, investors should brace for weaker payrolls and rising unemployment.”
The Fed is likely to take its time and absorb more data, especially given the noise we have seen in recent figures as a result of the government shutdown, according to Skyler Weinand at Regan Capital.
Positive employment data, sticky price levels and political noise will keep the Fed at bay through at least the Spring, he said.
“The market understands that now a January cut is off the table and is waiting for other economic data before drawing any major conclusions,” said John Kerschner at Janus Henderson Investors. “Let’s hold our horses, be patient and wait to see what other non-polluted data say before we change our overall forecasts.”
The Fed still has some room to move, especially given weaker job creation and downward revisions in the latest report, but they may choose to wait and see if the impact of tariffs is really transitory, noted Scott Helfstein at Global X. Rates are still likely to come down, but the timing is getting a little more cloudy, he noted.
With all the noise around foreign policy, tariff impacts, looming mid-terms, the situation with Powell and mixed employment data, there is plenty to ponder on how the US economy is going to shape up, according to Neil Birrell at Premier Miton Investors.
“If price pressures remain subdued in the coming months as data noise clears, it could open the door for another rate cut in the Spring,” said Angelo Kourkafas at Edward Jones. “With CPI out of the way, investors will now turn their attention to corporate earnings for signals on where markets may head next.”
“Strong earnings growth makes it unlikely the labor market experiences significant deterioration,” said Lauren Goodwin at New York Life Investments. “And though recent policy announcements are disruptive to market expectations, they are designed to improve economic activity ahead of an election year.”
Goodwin says she’s “staying fully invested — if more focused on quality and diversification as the cycle extends.”
US company earnings should easily beat modest expectations, driven by better-than-expected sales growth — both in demand and pricing — and margins, especially from artificial intelligence-related names, according to strategists at JPMorgan led by Dubravko Lakos-Bujas.
While it’s way too early to draw conclusions from the first few companies reporting results, Steve Sosnick at Interactive Brokers says he’s somewhat worried by the lack of concern coming into this earnings season.
“If companies can leap over the high bars that are set for them, then all should be fine,” he said. “If not, then that leaves a bit more room for disappointment than we might otherwise face.”
Elevated price multiples likely mean S&P 500 firms will need to match or beat profit estimates over the coming weeks, and in aggregate, they’ll probably need to confirm or raise earnings guidance for the current quarter to sustain price appreciation, said Anthony Saglimbene at Ameriprise.
“With broad index valuations above long-term norms, we believe the earnings bar continues to rise with each successive reporting season, creating a greater risk of disappointment if companies can’t live up to investor expectations,” he noted.
That said, Saglimbene bets the market will likely continue to reward companies that can beat profit expectations and raise guidance, while also pairing healthy top-line growth with expense discipline and providing a credible or favourable outlook for the road ahead.
Big Tech is still poised to be the dominant contributor to fourth-quarter profit growth among S&P 500 companies. Tech firms in the index are estimated to show year-over-year earnings growth of 20%, while non-tech earnings expansion is slated to decelerate from 9% to just 1%, according to data compiled by Bank of America Corp.
“Technology companies that can deliver revenue beats, sustained margin performance, and cash flow generation should continue to be rewarded with higher stock prices,” Saglimbene said. “This is one of the most important factors of the earnings season if broader stock averages are to maintain their upward momentum at the start of the new year.”
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