Banks Kick Off Earnings Season With Crucial Inflation Data Looming

by | Jan 13, 2025

See how I front-run some of Wall Street’s biggest moves at 4 p.m. ET on Tuesday — I’ve uncovered the next stock approaching a “liquidity level” at $95!

Earnings season is here, and it’s time to focus on what the numbers — and the market’s reaction to them — tell us about the state of the economy. 

As usual, the Financials (XLU) sector leads the way, with reports from key players expected starting Wednesday. 

These reports will provide insight into consumer behavior, credit quality and broader market health.

Take KB Homes (KBH), for example, reporting today after the close. The Homebuilder (XHB) sector has been fascinating to watch. Stocks like KB Home (KBH, D.R. Horton (DHI) and Lennar (LEN) saw tremendous runs off the 2022 lows — we’re talking gains of 200% to 300%. 

But as interest rates climb higher and the U.S. 10-year yield stays elevated, the sustainability of those gains is questionable.

Implied volatility in KBH suggests a modest $3.10 move around earnings, or about 4.9% relative to its $63 price (as of Friday). Unfortunately, the options chain for KBH doesn’t offer much in terms of tradeable opportunities. 

Strike prices are $5 apart, making it tough to construct a fair earnings play. Unless there’s an outlier move or a liquidity level worth targeting, this one might be better to sit out.

The Financials sector will also be a focal point. 

These earnings often serve as a barometer for the overall economy. Banks tend to give detailed insights into the state of consumer credit, delinquencies and overall lending trends. 

With delinquencies and foreclosures ticking higher, there’s a growing question of how much strain the bottom 90% of consumers can handle as inflation remains sticky.

Inflation data will likely add fuel to market volatility. 

The Consumer Price Index (CPI) year-over-year forecast is already higher than the previous print, showing that inflation is far from defeated. This narrative — higher inflation and stubbornly high prices — could weigh on sectors like Consumer Discretionary (XLY) and Technology (XLK) while adding pressure on growth stocks.

For traders, the focus should remain on identifying where volatility creates opportunities. While earnings season brings heightened activity, not every stock will provide a good setup. Look for options chains with tighter spreads and higher liquidity, especially in names where historical moves align with the market makers’ expected move.

This earnings season isn’t just about individual stocks — it’s about watching the bigger picture. 

Are we seeing signs of economic resilience, or are cracks forming that could lead to a broader pullback? 

Stay nimble, and don’t be afraid to step aside if the setups don’t make sense. Earnings season is always a mix of opportunity and caution, and this one looks no different.

I’ll see you in the markets. 

Chris Pulver
Chris Pulver Trading

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

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