Economy Goes Two-for-Two on Inflation: Stocks to Watch

Inflation and Market Sentiment - Investors welcomed a second cool inflation report, easing concerns over higher prices [1] - Positive quarterly earnings from major banks (JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo) contributed to the positive market sentiment [1] - The latest jobs report pushed the 10-year treasury yield to a 14-month high near 5%, but cool inflation data is expected to alleviate upward pressure on yields [2] - Light inflation figures may help relieve weakness in rate-sensitive market areas like small-caps, with the Russell 2000 having only 23% of its constituents trading above the 50-day moving average [2] Inflation Data Breakdown - The producer price index (PPI) rose 3.3% year-over-year, up from 3% in November but below the median forecast [4] - Wholesale prices increased 0.2% month-over-month, less than the 0.4% projection [4] - Core PPI (excluding food and energy) rose 3.5% year-over-year, lower than the 3.8% expected, and was virtually unchanged month-over-month [5] - The consumer price index (CPI) showed a 0.4% monthly increase and a 2.9% year-over-year rise, both in line with estimates [7] - Core CPI (excluding food and energy) increased 3.2% year-over-year, slightly better than the 3.3% projection, and rose 0.2% month-over-month, lower than expectations [7] Market Volatility and Stocks - Market volatility (VIX) plunged nearly 9% in early trading Wednesday, potentially offering lower-risk entry points in leading stocks [8] - Homebuilders, particularly the SPDR S&P Homebuilders ETF (XHB), rose more than 4% this week as markets rotated into rate-sensitive areas [9] - KB Home (KBH) reported strong Q4 results, with earnings of $2.52 per share (2.86$2 billion, leading to a nearly 5% stock rise [10] Big Banks' Performance - JPMorgan Chase (JPM) delivered Q4 earnings of $4.81 per share, a 19.35$42.77 billion (4.4% above consensus) [11] - JPMorgan shares advanced more than 50% over the past year and were up over 1% in early trading Wednesday [12] - Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C) also reported quarterly earnings beats of 5.97%, 48.1%, and 7.2%, respectively [13] - All four banks are part of the Zacks Financials – Investment Bank industry, ranked in the top 5% of Zacks Ranked Industries [16] Industry Insights - Quantitative research shows that roughly half of a stock's price movement can be attributed to its industry group [17] - The top 50% of Zacks Ranked Industries outperforms the bottom 50% by more than 2 to 1, highlighting the importance of targeting leading stocks in top-ranked industries [17]