MARKET WRAP

The conditions for a snapback rally had been building, as highlighted here recently. Monday’s VIX peak near 22, low investor sentiment, and a 5% SPX pullback from its highs set the stage for a sharp rebound on good news. Today’s cooler-than-expected CPI print, following yesterday’s PPI, drove yields lower (10YR now 4.65%, TLT +1.7%). As Liz noted on a recent MRKT Call, rising yields were the main factor behind recent equity weakness and a reversal in yields could send stocks higher. Big banks added fuel to todays rally, with C (+6.5%), WFC (+6.7%), and GS (+6%) surpassing expectations (predicted moves were 3% to 4%). JPM rose too (+2%) but inside what options were pricing. SPX closed +1.8%, while QQQ surged +2.3% after underperforming in recent sessions.

We'll dive deeper into the short-term market setup at the end of this email. MRKT Call dives into upcoming earnings.

MRKT MATRIX: January 15, 2025

Today’s Top Stories:

• Dow pops 700 points as market rally accelerates into trading close (CNBC)

• Inflation Rises Again, Hitting 2.9% in December (WSJ)

• BlackRock CEO Calls Record Client Cash ‘Just the Beginning’ (Bloomberg)

• Goldman Surpasses Estimates as Stock Traders Score Record Haul (Bloomberg)

• JPMorgan Traders Notch Record Fourth Quarter on Election Swings (Bloomberg)

• BlackRock CEO Calls Record Client Cash ‘Just the Beginning’ (Bloomberg)

• Wells Fargo shares jump after earnings beat, strong 2025 guidance (CNBC)

• Citigroup shares rise as fourth-quarter earnings top estimates (CNBC)

• TikTok Prepares for Immediate Shut-Off in the U.S. on Sunday (The Information)

• Microsoft, Google Roll Out New AI Pricing for Businesses (The Information)

• The crazy ride in quantum computing stocks continues as shares rip higher on Microsoft’s ‘quantum-ready’ directive (CNBC)

• Historical Lessons: How New Tariffs Could Affect Financial Markets (FactSet)

Today’s MRKT Call is Presented by CME Group

Stocks Rally On Inflation Report & Bank Earnings

On today’s MRKT Call Dan and Guy cover today’s big rally, and some thoughts on what’s next. A quick look at Gold before John Butters from FactSet visits with a massive earnings preview. Then LULU and NKE before a long discussion on today’s bank moves and the private credit story.

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Today’s On The Tape is Presented by Betterment

Investing Legend Dan Niles Reveals Top Picks For 2025

Dan Nathan and Dan Niles, founder and portfolio manager at Niles Investment Management, engage in an in-depth discussion about the current state of the tech market, broader economic trends and his top picks for 2025. The conversation touches on the volatility in tech stocks, the implications of inflation, and the Fed's influence on market conditions. Dan Niles shares insights on his cautious outlook for 2025, citing inflation worries and potential AI digestion phases. They also discuss the performances and forecasts of major tech companies, including Microsoft, Meta, Apple, and Amazon, and examine how macroeconomic factors like the U.S. dollar and interest rates are affecting these giants. Niles emphasizes the importance of being adaptable in this uncertain market landscape, with a focus on cash and well-rounded stock picks.

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What’s Next?

SPX options were pricing a 1.1% move for today’s CPI release and the slew of earnings pre-market. That in and of itself was significant because the market had moved on from CPI as big market events somewhat from the glory days of wild CPI moves in early 2024. The realized move of +1.8% was significant too, though not surprising given the context. Recently, options had regularly underpriced daily moves, particularly during the market’s decline. However, the VIX briefly topping 21 on Monday signaled a near-term rush for protection, creating a short gamma environment that helped fuel today’s sharp snapback

Now, with the VIX at 16 (down from 21.50 on Monday), the market’s direction over the next few days is crucial. Treasury yields remain a key factor. If yields continue their decline into Friday (or at least move from center stage), it could support a continued equity bounce, potentially driving the SPX back above the 6000 level. Closing the week near 6000 appears to be the highest probability scenario because there is some supply above that. If treasury yields lose their influence on day-to-day equity moves, the market’s next leg will likely hinge on earnings, especially from mega-cap tech companies.

Overnight (around 2 AM), Taiwan Semiconductor (TSM) reports earnings. Options are pricing a 6.2% move. A substantial move beyond this expectation could shift the market’s focus from treasury yields to earnings as it is likely to drag the rest of the sector with it. After that, NFLX reports on Tuesday, beginning a packed tech earnings calendar, culminating in a massive week starting the 28th with reports from GOOGL, AAPL, TSLA, META, MSFT, AMZN and others.

The QQQ bounce today has it back to its downtrend line from the mid-December highs. Breaking above this line on TSM earnings could set up to be followed by other positive reactions to earnings and a test of the December highs, which are only 4% away. The flipside, amidst negative reactions would likely at least retest Monday/Tuesday’s recent lows. We’ll have a better sense of this on tomorrow’s open.

Lastly, this Friday marks the monthly options expiry, which may lead to a shift in market conditions as positions are rolled out into next week. Keep an eye on the VIX coming out of this expiration as a return below 15 would very much support an equity grind higher back to highs. If the VIX creeps higher, even on choppy action around earnings that could signal continued apprehension of the overall market.

Want to check out past episodes? Search for “On The Tape,” “MRKT Call,” or “Okay, Computer.” wherever you listen to podcasts

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