On Monday, U.S. stocks increased while investors anticipated inflation data to evaluate the direction of monetary policy. The S&P 500 rose by 1.1% to 4137.29, the Dow Jones Industrial Average increased by 1.1% to 34245.93, and the Nasdaq Composite climbed 1.5% to 11891.79. The Labor Department is set to release the consumer-price index reading on Tuesday, which is a closely watched measure of consumer spending. Although investors broadly anticipate inflation to continue moderating, some are cautious that it could settle above the Federal Reserve’s 2% target.
Peter Garnry, head of equity strategy at Saxo Bank, said that the key thing is to determine at what level inflation will start to stabilize. He added that if the inflationary factors persist, the Fed will be required to either take further actions or maintain the interest rates at a higher level than what the market is currently predicting.
Stocks are usually adversely affected by higher interest rates, as they make safer options such as Treasurys more attractive. This effect is particularly severe for technology stocks, which depend heavily on expected growth. This is because higher interest rates cause future profits to appear less valuable in today’s money.
Even though the busiest phase of the fourth-quarter earnings season is over, several big companies, such as American International Group, Airbnb, Applied Materials, Cisco Systems, Coca-Cola, and Kraft Heinz, are expected to release their reports later this week.
According to FactSet, an increased percentage of companies have missed consensus sales and profit forecasts this year, and quarterly profits are expected to decrease by 4.9% YoY, which is the first such decline since 2020.
On Monday, every S&P 500 sector, except energy, closed higher, indicating a broad-based gain. This was a rebound from the S&P 500’s first weekly decline of the year, which occurred last week.
Despite the year’s rally, investors appear to be anxious. Refinitiv Lipper data shows that they have withdrawn a net $31 billion from U.S. equity mutual funds and exchange-traded funds in the last six weeks. This marks the largest aggregate withdrawal from domestic equity funds to start a year since 2016.
In a note on Monday, Jean Boivin, head of the BlackRock Investment Institute, stated that when the CPI report is released on Tuesday, the market will focus on core services inflation, which is the most affected by tight labor markets and higher wages.
According to Mr. Boivin, there is a search for ongoing signs of economic damage in US retail sales and industrial production.
The retail-sales figures, which are scheduled to be reported on Wednesday, will provide hints on the state of the US consumer. According to New York Fed data released on Monday, the median consumer’s expectations for household income growth fell by more than a percentage point to 3.3% in January. Although this is still above prepandemic levels, it represents the steepest one-month decrease since the Fed began measuring it almost a decade ago.
Fidelity National Information Services was the S&P 500’s worst performer on Monday, with shares plummeting 13% to $66 after the company stated that it plans to spin off its merchant business. Biotechnology company Illumina was the best performer in the index, with shares rising 9.9% to $215.94.
Cineworld, the British movie-theater operator that owns Regal Cinemas, saw its shares rise 18% in London after a report that rival Vue International was preparing to make a takeover bid.
In bond markets, the yield on the 10-year US Treasury note decreased to 3.716% from 3.743% on Friday.
In energy markets, Brent crude, the international oil benchmark, increased 0.3% to $86.61 a barrel, reversing earlier losses. Oil prices have risen in five out of the past six trading sessions.
The pan-continental Stoxx Europe 600 increased by 0.9% overseas. The Shanghai Composite in China rose 0.7%, while the Kospi Composite in South Korea fell 0.7%, and Japan’s Nikkei 225 fell 0.9%.
