S&P 500 Flat as Retail Sales Miss, Bank Earnings Impress, and TSM Rallies

S&P 500 Set for Flat Open as Traders Eye Earnings and Mixed Economic Data

The S&P 500 is bracing for a quiet open Thursday, with investors balancing disappointing retail sales data and mixed labor market signals against strong banking sector earnings.

Retail sales rose 0.4% in December, below the expected 0.6%, signaling resilience but falling short of optimism.

Initial unemployment claims increased more than forecast, but the labor market remains stable. Meanwhile, the 10-year Treasury yield eased to 4.674%, offering relief to interest rate-sensitive sectors.

Can Bank Stocks Maintain Momentum?

Major banks remain in focus after reporting strong earnings, but the rally in financials may be losing steam. Morgan Stanley gained 2.2% premarket on robust Q4 earnings driven by increased dealmaking activity. Bank of America edged up 0.3% after projecting higher interest income in 2025.

While these results highlight the sector’s profitability, some analysts warn the recent surge in financial stocks might be overextended. The S&P 500 Banks Index has outperformed broader markets this month, but traders should be cautious as expectations for looser regulations and potential capital returns may already be priced in.

Are Other Sectors Offering Better Opportunities?

Chipmakers have emerged as bright spots. Taiwan Semiconductor Manufacturing Co jumped 5.4% after posting record profits driven by strong AI chip demand. U.S.-listed peers followed, with Nvidia climbing 1.4% and Broadcom up 2.7%.

However, some Dow components are underperforming. UnitedHealth dropped 4% after reporting lower-than-expected Q4 revenue, pressuring the index in premarket trading.

How Are Policy and Rate Expectations Shaping Markets?

Shifting Federal Reserve expectations are a key driver. Traders now anticipate a 25-basis-point rate cut by July, reversing earlier forecasts for no cuts in 2025. This shift reflects cooling inflation and steady labor conditions, easing some fears of a prolonged tightening cycle.

On the political front, Senate confirmation hearings for President-elect Trump’s Cabinet picks, including Treasury nominee Scott Bessent, could shape market sentiment. Plans for tax cuts, tariffs, and deregulation may influence the business environment for key sectors.

What’s the Outlook for Traders?

Banking stocks may see limited upside in the short term as much of the optimism from earnings and regulatory expectations has likely been priced in. The strong showing from chipmakers and stabilizing Treasury yields could make tech and growth sectors more appealing near-term.

Traders should focus on upcoming bank earnings and economic data to gauge consumer and corporate resilience. With mixed signals from retail sales and unemployment claims, markets may face increased volatility, making selective sector plays a prudent strategy for the weeks ahead.

More Information in our Economic Calendar.