Wall Street Brunch: CPI Views and Earnings Season Kicks Off

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The March Consumer Price Index is released with the Fed’s June odds of 50/50. (0:19) JP Morgan, Citi and Wells Fargo begin earnings season. (1:29) Is Paramount Global about to sign a deal with Skydance? (3:05)

Below is an abridged transcript.

Top news to watch

The macro focus will be on the March consumer price index, which is released on Wednesday.

Economists expect the headline figure to rise 0.3% this month, lifting the annual rate to 3.4% from 3.2%. Core CPI, excluding food and energy, is also expected to rise by 0.3% and fall to 3.7% for the year.

The last time we had CPI numbers, federal funds futures were putting the odds of a June rate cut at 70%. That’s now lowered to 50/50 after nonfarm payrolls rose more than expected in March.

Wells Fargo economists say that if there is a 100 basis point cut this year, the risks are “tilted toward less easing rather than more,” and that the month-end CPI and employment cost index “a healthy balance between supply and demand in the labor market is likely to lead to inflation.” This translates into lowering the pressure.”

“Returning inflation to 2% over the longer term remains a key concern for the Fed, and at least a little more progress will be needed on the inflation front before the first rate cuts occur,” they added. But “what we know now suggests that the strength of the labor market suggests the FOMC may continue to wait for further improvement on the inflation front before easing policy.”

Meanwhile, the big banks begin earnings season this weekend. Friday will see premarket results for all issuances from JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK) and Citigroup (C).

Analysts noted that investment banks had a strong first quarter, with high-yield issuances, leveraged loan syndication and equity underwriting volumes all hitting their highest levels since the fourth quarter of 2021. But demand for corporate loans was weak.

Alpha analyst Cavenagh Research gave Citi a Strong Buy rating and said the stock is significantly undervalued.

“Rising expectations of interest rate cuts are increasing optimism about a better credit environment and supporting potential lending growth as well as a sharp increase in (investment banking) activity,” Cavenagh added.

Among other notable gains:

Joining the pack on Tuesday are Neogen (NEOG), PriceSmart (PSMT), and Tilray Brands (TLRY).

Wednesday will feature numbers from Delta Air Lines (DAL), Applied Digital (APLD), and Rent the Runway (RENT). Constellation Brands (STZ), CarMax (KMX), and Fastenal (FAST) issued reports on Friday.

While watching the weekend news

Elon Musk’s xAI is in talks with investors to raise $3 billion in a funding round that would value the artificial intelligence startup at $18 billion. According to the Wall Street Journal, yes.

Venture capital firm Gigafund and investor Steve Jurvetson are among the backers considering investing in xAI’s funding round. Gigafund was co-founded in July 2017 by Stephen Oskoui and Luke Nosek, who previously co-founded PayPal. Jurvetson is a co-founder of his own venture capital firm, Future Ventures.

Both Gigafund and Jurvetson are long-time backers of Musk’s company, with holdings across SpaceX, Tesla (TSLA), The Boring Company, and Neuralink.

National Amusements, which controls Paramount Global (PARA) through voting rights and owns the movie theater chain, is in exclusive talks to sell itself to Skydance Media.

Under the terms of the deal being discussed between Shari Redstone’s National Amusements and Skydance, Redstone’s company would receive more than $2 billion in cash as part of the first phase of the deal, according to a WSJ report.

Paramount would then acquire Skydance in an all-stock transaction valued at approximately $5 billion. Skydance could inject a “significant” amount of cash into Paramount to help with its balance sheet and debt repayment.

Under the terms being discussed, Redstone would receive cash, while investors holding non-voting shares would acquire shares of the combined company and take a diluted stake. CNBC reported Thursday that the plan would require Paramount to raise up to $3 billion in new equity. Skydance’s David Ellison and his partners will step up for a “reasonable amount” of the assets, but this will be “dilution”.

For Income Investors

Companies going ex-dividend this week include Mastercard (MA) on Monday, with a payout date of May 9th. AT&T (T) and Gap (GPS) set their May 1st dividend dates on Tuesday. And AbbVie (ABBV) is going. The ex-dividend date is Friday, May 15th.

And in the Wall Street research corner

Citi analysts downgraded the Hardware & Equipment subsector to Underweight and then downgraded the Info Tech (XLK) sector to Market Overweight from Overweight. Software & Services remains Overweight due to strong revenue and profit trends.

Strategist Scott Chronert said AI is still a big source of demand for chip and chip equipment companies, but there is growing pressure on fundamentals.

The team also disclosed a large number of stocks within Info Tech with Buy and Sell ratings.

Among the buys is Dynatrace (DT), estimated to deliver a total return of 48%, followed by Apple (AAPL) at 27% and Micron (MU) at 26%. Selling included NXP Semi (NXPI) with an ETR of -37% and Skyworks Solutions (SWKS) with an ETR of -19%.