Happy Friday eve! Today we’re covering what the latest inflation data means for the Federal Reserve, big bank earnings, the Israel-Hamas ceasefire and more. Forwarded this newsletter? Join 190,000 self-directed investors gaining an edge every morning — sign up here.

Hot and cold inflation

The Federal Reserve may just give investors what they want this year after all. 

The December inflation report, released Wednesday, showed headline CPI climbing 2.9% year-over-year, higher than November’s print of 2.7% though in-line with forecasts. 

The stock market enjoyed a broad rally, however, largely on account of core CPI — which strips out food and energy costs — slowing for the first time since July, hitting 3.2% annually.

That’s down from November’s 3.3% and lower than expected. 

…which has revived markets’ hopes for multiple Fed rate cuts this year.

“The current economic trajectory is relatively stable and not consistent with a major flare-up of inflation,” said Richard de Chazal, a macro strategist with William Blair.

“From the Fed’s perspective, there is little here to move it away from an expected pause in rate cuts (to which it has already provided forward guidance) at the January 29 FOMC meeting, but also little to suggest that there is still not room for further cuts in the coming quarters.” 

While a January move remains effectively off the table, according to CME data, traders’ bets for zero rate cuts in 2025 dropped to 15.4% from roughly 26% one day prior. 

Traders on the prediction platform Kalshi ramped up bets for slightly more rate cuts this year, too.

On Wednesday, bettors saw 22% odds of zero rate cuts in the next 12 months, down from 26% on Tuesday.

“Questions about how much lower rates can go remain,” said Steve Wyett, chief investment strategist at BOK Financial. “But there is less talk about a Fed not only not lowering rates from here but maybe even having to reverse course before the end of the year.” 

To be clear, despite the upbeat market reaction, the headline CPI print was still the highest month-over-month reading since last March.

Gas prices were up 4.4% in the month, the index for rent climbed more than it did in November, and egg prices jumped 3.2% month-over-month.

Plus, the coming months hold plenty of uncertainty tied to Trump 2.0 and the risk of resurgent inflation. 

In any case, none of that may matter to investors fixated on a stock market that continues to outperform. 

“It is looking less and less likely that an accommodative Fed is the primary force that supports markets in 2025,” said Elyse Ausenbaugh, head of investment strategy at JPMorgan Wealth Management.

“We think the S&P 500 will make new all-time highs in the year ahead, and it’s earnings results and forward guidance that are needed to justify the rally.”

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Elsewhere:

💰️JPMorgan reported record profits (again). The bank churned out more profits than ever before with a $14 billion quarter in the final three months of 2024, and full-year profits of $58 billion. That’s also an all-time amount for any American bank ever. A return of dealmaking helped boost those numbers, and investment banking revenue was up 49% from a year earlier (Yahoo Finance)

📉 Cooling inflation still doesn’t help consumers much. While markets cheered the Wednesday data and investors seem eager, price growth remains squarely above the Fed’s stated 2% target. Plus, with the labor market showing no signs of major deterioration, central bankers may choose to stand pat anyway — which could bring sustained pain for everyday borrowers. (Barron’s)

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🥇Goldman Sachs crushed earnings. Stronger-than-expected trading revenue helped the bank beat estimates across the board and roughly double profits from a year earlier to $4.11 billion, while revenue increased 23% to $13.87 billion. The stock rose more than 5% Wednesday. (CNBC)

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