Selling momentum returns amid multiple headwinds
The S&P 500 is down 0.7% in midday action, as investors digest mixed bank earnings, downbeat economic data, and higher interest rates. The Dow Jones Industrial Average (-1.1%) and Russell 2000 (-1.0%) are down roughly 1.0% while the Nasdaq Composite (-0.4%) outperforms on a relative basis. The Q4 earnings-reporting season has begun on a disappointing note, as JPMorgan Chase (JPM 157.73, -10.51, -6.3%), Citigroup (C 66.06, -1.74, -2.6%), BlackRock (BLK 841.78, -25.79, -3.0%), and First Republic Bank (FRC 191.58, -8.94, -4.5%) trade sharply lower following their reports. Each of these companies, except Citigroup, beat EPS estimates.The S&P 500 financials sector is down 1.8%, although Wells Fargo (WFC 57.64, +1.64, +2.9%) is bucking the trend with a 3% gain after beating top and bottom-line estimates. The real estate (-1.9%), industrials (-1.3%), and consumer discretionary (-1.4%) sectors are also down more than 1.0%.Conversely, the energy (+1.2%) and information technology (+0.3%) sectors are trading higher. The technology sector is receiving support from Microsoft (MSFT 309.00, +4.23, +1.4%) and the semiconductor stocks. The chip stocks are up in a delayed appreciation for Taiwan Semi's (TSM 141.43, +2.27, +1.6%) positive earnings news yesterday. Value/cyclical stocks, apart from energy, are also running into disappointing economic data: total retail sales fell 1.9% m/m in December (Briefing.com consensus 0.0%), industrial production fell 0.1% m/m in December (Briefing.com consensus 0.3%), and the preliminary University of Michigan Index of Consumer Sentiment for January decreased to 68.8 (Briefing.com consensus 68.5) from 70.6 in December. The 10-yr yield, which is up six basis points to 1.77%, appears to be reacting to the inflation component of the consumer sentiment report. Specifically, 5-year inflation expectations rose to 3.1% for the first time since 2011.Besides the data, other headwinds include downside guidance from Sherwin-Williams (SHW 307.86, -9.53, -3.0%) and Boston Beer (SAM 440.41, -48.57, -9.9%), as well as an analyst downgrade of Walt Disney (DIS 149.27, -6.17, -4.0%) to Neutral from Buy at Guggenheim.Reviewing today's economic data:Total retail sales were down 1.9% month-over-month in December (Briefing.com consensus 0.0%) while retail sales, excluding autos, decreased 2.3% (Briefing.com consensus 0.2%). On a year-over-year basis, total retail sales were up 16.9% and up 18.8% excluding autos.The key takeaway from the report is that total retail sales, which are not adjusted for inflation, contracted at their fastest pace since last February in the face of broadly higher prices. This suggests that inflation is weighing down consumer spending.Total industrial production decreased 0.1% in December (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.5%) in November. The capacity utilization rate dipped to 76.5% (Briefing.com consensus 77.1%) from a revised 76.6% (from 76.8%) in November.The key takeaway from the report is that the December dip was owed to a pullback in manufacturing production after two months of solid growth.The preliminary January reading for the University of Michigan Index of Consumer Sentiment came in at 68.8 (Briefing.com consensus 68.5) versus the final December reading of 70.6.The key takeaway from the report is that inflation expectations are becoming more entrenched, as the 5-year inflation expectations rose to 3.1%, representing the first increase above the 3.0% mark since 2011.Import prices fell 0.2% in December after increasing 0.7% in November. Excluding oil, import prices increased 0.5% after increasing 0.5% in November. Export prices fell 1.8% after increasing 0.8% in November. Excluding agriculture, export prices fell 2.1% after increasing 0.6% in November.Business inventories increased 1.3% m/m in November (Briefing.com consensus 1.0%) following a revised 1.3% increase (from 1.2%) in October.