(Bloomberg) — Wall Street traders gearing up for key inflation data waded through mixed economic figures, while awaiting a slew of Federal Reserve speakers for clues on the interest-rate outlook.
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Equities saw small losses after a report showed the US economy expanded at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. The data — seen as “uneventful” by many investors — came just 24 hours before the release of the Fed’s favored inflation gauge.
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Following a jump in both the consumer and the producer price indexes, Thursday’s core personal consumption expenditures price gauge will likely highlight the bumpy path the central bank faces in achieving its 2% target. The data would also validate recent commentary from officials showing no rush to cut rates. Among Wednesday’s Fed speakers are Raphael Bostic (Atlanta), Susan Collins (Boston) and John Williams (New York).
“The recent data is noise and should be ignored outside of its impact for very short-term market movements,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “We are more interested in the PCE data that will be released tomorrow.”
The S&P 500 hovered near 5,070. Nvidia Corp. extended its decline from a record. Apple Inc. fell, while still remaining above its $180 technical support. UnitedHealth Group Inc. sank on news reports that the US Department of Justice has initiated an antitrust probe. Tesla Inc. climbed. Cryptocurrency-related shares rallied as Bitcoin topped $61,000. Treasury 10-year yields fell one basis point to 4.29%.
“Despite the ‘reinflation’ alarm bells that went off earlier this month, other data hasn’t necessarily pointed to an overheating economy,” said Chris Larkin at E*Trade from Morgan Stanley. “Investors and the Fed are in the same boat right now, having to wait for more data to come in before a clearer picture emerges.”
Traders have been moving to price a little over 75 basis points of US easing by year-end — roughly in line with what policymakers in December indicated as the likeliest outcome. That would equate to three interest-rate cuts in 2024 — as the Fed moves have historically been increments of 25 basis points.
To Matt Maley at Miller Tabak, given that long-term Treasury yields have shown significant signs that they have seen a change in trend to the upside this year, Thursday’s inflation data could still shake things up before the week is over.
“If tomorrow’s inflation data pushes yields higher, it just might cause stock investors to finally react to this year’s change in trend in bond yields,” Maley noted.
Bolstered by speculation on rate cuts and the artificial-intelligence euphoria, equities have posted successive records this year and are now heading toward their fourth consecutive monthly advance. Such optimism has spurred warnings about either a consolidation or a pullback at this stage.
“We believe there are valuation concerns throughout the markets,” said David Bahnsen, chief investment officer at the Bahnsen Group. “Markets are pricing in unrealistic earnings growth at this point. It is just hard for us to rationalize entering the indexes at these levels.”
Bahnsen also notes that investors should be “prudent and selective” — avoiding a strategy that simply buys the stocks that go up.
“We expect market breadth to increase,” he added. “The only question is whether or not it increases from the top 5-10 names underperforming or the currently underperforming components of the market increasing — or some combination thereof.”
US stocks have reached a significant inflection point — poised to either “top out or broaden out,” according to Craig Johnson at Piper Sandler. The weight of the technical evidence suggests the next 10% move in the equity market is likely lower than higher, he added.
“We continue to observe overall poor market breadth,” Johnson noted. “A broadening out will favor the financial and healthcare sectors as they are among the largest weightings in the Russell 2000. A topping out would likely result from profit-taking in the ‘Magnificent Seven’ stocks.”
It has proved impossible to call the peak in this euphoric US stock market, says Goldman Sachs Group Inc.’s tactical specialist Scott Rubner.
Retail traders have been lured into this rally just as a Goldilocks scenario — where the economy is running neither too hot nor too cold — has been playing out, prompting analysts quickly to upgrade their year-end targets, Rubner wrote in a note to clients on Wednesday. March is now a “fuller house” and the rally is “tired,” however there is no catalyst for a potential selloff, he said.
Corporate Highlights:
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US regulators issued an ultimatum to Boeing Co. in the wake of a near-catastrophic accident last month, giving the US plane manufacturer 90 days to devise a plan to fix what it called “systemic” quality-control issues.
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Walt Disney Co. and billionaire Mukesh Ambani’s conglomerate have signed a binding pact to merge their media operations in India, creating a sector behemoth valued at $8.5 billion in one of the world’s fastest-growing entertainment markets.
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EBay Inc. posted a strong holiday quarter, giving investors fresh hope that the company can boost profits following steep job cuts.
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Beyond Meat Inc., the maker of plant-based protein food products, reported fourth-quarter sales that surpassed expectations.
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Bumble Inc. is cutting about one-third of its workforce after a recent executive shakeup as the online dating app company seeks to overhaul its app to revive slowing user growth.
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Royal Bank of Canada beat analysts’ estimates as stronger-than-expected performance in the firm’s capital-markets and wealth-management businesses countered an increase in loan-loss provisions and higher expenses.
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Baidu Inc.’s profit plunged a worse-than-anticipated 48%, underscoring the growing costs of training and developing AI to fend off challengers in the burgeoning arena.
Key Events This Week:
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Germany CPI, unemployment, Thursday
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US consumer income, PCE deflator, initial jobless claims, Thursday
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Fed’s Austan Goolsbee, Raphael Bostic and Loretta Mester speak, Thursday
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China official PMI, Caixin manufacturing PMI, Friday
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Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Friday
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BOE chief economist Huw Pill speaks, Friday
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US construction spending, ISM Manufacturing, University of Michigan consumer sentiment, Friday
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Fed’s Raphael Bostic and Mary Daly speak, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.1% as of 11:33 a.m. New York time
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The Nasdaq 100 fell 0.3%
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The Dow Jones Industrial Average fell 0.3%
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The Stoxx Europe 600 fell 0.4%
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The MSCI World index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro was little changed at $1.0834
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The British pound fell 0.2% to $1.2656
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The Japanese yen fell 0.2% to 150.75 per dollar
Cryptocurrencies
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Bitcoin rose 8.3% to $61,459.01
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Ether rose 4.3% to $3,388.32
Bonds
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The yield on 10-year Treasuries declined one basis point to 4.29%
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Germany’s 10-year yield was little changed at 2.46%
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Britain’s 10-year yield was little changed at 4.19%
Commodities
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West Texas Intermediate crude fell 0.8% to $78.21 a barrel
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Spot gold rose 0.1% to $2,033.23 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna and Thyagaraju Adinarayan.
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