Both stocks and bonds benefitted from good news across the earnings, macroeconomic, and geopolitical fronts today. Financial stocks jumped as big banks kicked off Q4 earnings season with better-than-expected results, and the S&P 500 rose 1.8%. Treasuries rallied, as December's CPI was a bit cooler than feared. And Israel and Hamas have agreed to a ceasefire after 15 long months of fighting.
We anticipated that Trump 2.0 would be positive for the geopolitical scene, despite the overwhelming chatter about tariffs upsetting global trade. On November 12, following Trump's electoral win, we wrote: "We believe Trump 2.0 represents a major regime change that’s bullish for the economy and stocks. We now expect a sooner end to current geopolitical crises and possibly some improvement in the fiscal situation..."
Here's more on today's developments:
(1) Bull/Bear Ratio. In the December 18, 2024 QuickTakes, we noted that Investors Intelligence’s Bull/Bear Ratio rose to a very bullish 3.80 reading, which we noted was a short-term sell signal from a contrarian perspective. After this past Friday's sharp stock market selloff, we expected to see the ratio fall sharply, which it did, down to 1.32 (chart). We reckon today's sharp rally reflected lots of short covering on a cooler-than-expected CPI report.
(2) Financials. We entered the current earnings reporting season expecting 10.0% y/y earnings growth for the S&P 500 companies in aggregate, above analysts' expected 8.2% (chart). Today, shares of JPMorgan, Goldman Sachs, Citigroup, Wells Fargo, and BlackRock all rose after reporting strong Q4 earnings before the market’s open. The Financial Select Sector SPDR Fund (ticker: XLF) rose 2.5%. We continue to recommend overweighting Financials, especially now that Trump 2.0 is likely to ease bank regulations.
