Dow 30: JPMorgan, BoA earnings & CPI data analysis

Mixed pricing data and earnings from the financial heavyweights

More pricing data was available last Friday, following Thursday’s CPI (Consumer Price Index) readings for December. These readings were hotter than anticipated. In contrast, the producer prices for the same period were lighter than forecast. The year-on-year (y/y) reading was 1% for the headline and -0.1% month-on-month (m/m). Excluding food and energy, the figure fell to 1.8% y/y, due to a lack of m/m growth in its core.

On the earnings front, there was plenty to process. Financial heavyweights released their figures, which included one-off hits such as refilling the deposit insurance fund and setting aside more for loan loss provisions.

Key outcomes were:

1. JPMorgan Chase, beating on revenue and reporting an annual profit of nearly $50bn, even as quarterly net income dropped
2. Bank of America, beating on earnings but missing on revenue with net interest income (NII) dropping 5%
3. Wells Fargo, an exception, enjoying a rise in profits and beating both earnings and revenue, though NII dropped as well
4. Citigroup, suffering a $1.8bn loss with revenue missing estimates and sizable charges that were announced earlier.

Key US stocks finished the week higher, with tech outperforming. Treasury yields were in retreat, though impacted less on the furthest end. Market pricing (CME's FedWatch) is heavily in favor of a rate cut in March and back at anticipating beneath 4% by the end of the year.

Week ahead

The upcoming week starts off light due to a US holiday, gradually picking up towards Wednesday’s retail sales for December. In the housing sector, there's plenty of data. This includes the weekly mortgage applications on Wednesday, followed by NAHB’s housing market index, which remains sub-50, signifying a negative outlook. On Thursday, both building permits and housing starts are due, where previously the former dropped m/m while the latter jumped. Existing home sales on Friday are struggling to rise to pandemic lows, with rates still high enough to discourage many homeowners locked in with lower rates from selling.

Manufacturing indices from the Federal Reserve banks of New York and Philadelphia will likely remain negative as the sector continues to suffer contraction. On Friday, we’ll have preliminary readings from UoM (University of Michigan) where consumer sentiment has improved from mid-2022 lows, and inflation expectations are in notable retreat.

Additionally, there are more earnings to consider, with (Dow 30 component) Goldman Sachs and Morgan Stanley reporting tomorrow and numerous regional banks throughout the week. A government shutdown looks less likely as we approach the first deadline, following reports that congressional leaders have agreed to a continuing resolution to keep it going until March. For the US primary elections, there’s the Republican Iowa caucus today.

Dow technical analysis, overview, strategies, and levels

The Dow saw a positive close, but it failed to undo the losses from the preceding week. There was a lack of play for both conformist and contrarian strategies on the longer-term weekly, with the intraweek highs and lows within its previous weekly 1st levels.

However, the daily time frame was different. Thursday's lows got past its 1st Support and S/L, initially favoring contrarian sell-breakouts and stop-outs for conformist buy-after-significant reversals. Later, it offered the latter a chance at redemption with a move back up on that day and Friday. The overview remains bullish in both time frames but is stalling more noticeably on the daily.

IG client* and CoT** sentiment for the Dow

IG Clients are still in extreme sell territory but have dropped from 83% to 80%, with a small portion trading these higher ranges.

As for CoT speculators, they have increased their long bias, taking it to a heavy buy at 74% on an increase in longs and a simultaneous drop in shorts (longs +2,678 lots, shorts -1,859). With another percentage sentiment gain like that, it'll be in extreme long territory when the next report is released.

Dow chart with retail and institutional sentiment

• _{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.}
• _{**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}