4:11 pm: Inflation still weighs on markets despite having already peaked
The Dow closed Tuesday down 157 points, 0.5%, at 34,089, while the Nasdaq Composite added 68 points, 0.6%, to 11,960 and the S&P 500 lost 1 point to 4,136. The small-cap focused Russell 2000 improved 3 points to 1,944.
It was a choppy day for the benchmarks as investors digested slightly higher-than-expected consumer price index numbers. The 6.4% annual rate figure wasn't a big surprise, but the question remains how long it will take for inflation to fall to normal levels.
Investors are also awaiting a number of earnings reports this week, including Airbnb Inc after the close Tuesday.
12:05 pm: Slightly higher than expected January CPI data weighs on stocks
US stocks were lower in noon trading as January’s consumer price index (CPI) report showed that inflation grew at a stronger-than-expected 6.4% annual rate, and higher than the previous month.
At midday, the Dow fell 336 points to 33,910, while the S&P 500 eased 33 points at 4,105 and the tech-heavy Nasdaq slipped 65 points to 11,827.
“While there were no major surprises in today’s CPI reading, it is a reminder that while inflation has peaked it could be a while before we see it moderate to normal levels,” said Morgan Stanley Global’s head of model portfolio construction Mike Loewengart said.
Notable movers included shares of Palo Alto Networks, which rose more than 1% after Goldman Sachs initiated coverage on the cybersecurity giant with a ‘Buy’ rating and a price target of $205.
9:35 am: Stocks fall on sticky inflation
The three major US indices started the day in the red after January’s consumer price index (CPI) reading came in slightly higher than expected, reigniting fears that the Federal Reserve will continue its hawkish stance in regard to its monetary policy in the coming months.
Shortly after the market opened, the Dow Jones Industrial Average had shed 212 points or 0.6% at 34,033 points, the S&P 500 was down 30 points or 0.7% at 4,107 points, and the Nasdaq Composite had shed 108 points or 0.9% at 11,784 points
BRI Wealth Management portfolio manager Tom Hopkins said today’s inflation reading was proving that inflation is stubborn and it’s an important indicator as to how many more 25 basis point rate hikes might be in the pipeline as the Fed looks to push inflation back to its 2% target.
“I expect the Fed to further tighten monetary policy as they are still far from achieving price stability,” he said.
Hopkins added that, after an unexpectedly strong jobs report for last month, this could stoke the Fed to be more aggressive in its tightening monetary policy to cool the economy more effectively.
“The enduring strength of the US labour market combined with a gradual easing of inflation has raised hopes that the American economy might avoid a recession, but Fed officials have always cautioned that such an outcome is far from guaranteed,” he said.
“I suspect the hawkish rhetoric to continue from the Federal reserve.”
8.40am: CPI may break hearts this Valentine’s Day
The highly anticipated consumer price index (CPI) reading for January has come in slightly higher than expected at 0.5% month-over-month and 6.4% year-over-year. The market had been expecting increases of 0.5% and 6.2%, respectively.
The core index, which excludes the food and energy components, rose 0.4% month-over-month, on par with the Street’s expectation. Core inflation came in up 5.6% over the 12 months to January, ahead of the expected 5.4%.
Shortly after the data was released, futures for the Dow Jones Industrial Average were up 0.2%, the S&P 500 had added 0.3%, and the Nasdaq Composite had added 0.4% in pre-market trading.
ADSS head of sales trading Neal Keane said US CPI holding relatively flat at 6.4% showed that the Fed’s fight against inflation has met some headwinds as it tries to move closer towards its 2% inflation target.
“This report, combined with the booming jobs market, will certainly raise questions at the Fed’s Monetary Committee meeting next month," Keane said.
"Current expectation is for another 25 bps raise in interest rates, given their signal that the fight with inflation is far from over, higher increases than 25 bps cannot be ruled out.”
He added: “Markets will reassess recent peak inflation themes, and with more strong US data likely to force the Fed to continue to hike rates for longer, we can expect further stock market weakness, a stronger dollar, and weaker commodities.”
6.30am: CPI release looming
Wall Street is expected to open higher ahead of a consumer inflation report that is likely to provide a steer for the Federal Reserve's interest rate policy going forward.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.1% in Tuesday pre-market trading, while those for the broader S&P 500 index added 0.3%, and contracts for the Nasdaq-100 gained 0.4%.
January’s Consumer Price Index (CPI), scheduled for release at 8:30am Eastern Time, is expected to show core inflation decelerating to 5.4% from 5.7% in December, with the headline inflation slowing to 6.2% from 6.5% a month earlier.
On a monthly basis, core inflation is seen stable around 0.4%, while headline inflation is seen ticking higher from 0.1% to 0.5%.
Ahead of today’s CPI release, the DJIA closed Monday up 1.1% at 34,256, the Nasdaq Composite added 1.5% to 11,892, and the S&P 500 jumped 1.1% to 4,137.
"A sufficiently soft, or ideally a softer-than-expected CPI read today should give an additional boost to the equity bulls and push the S&P500 to fresh highs in the actual positive trend,” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “A stronger inflation read, on the other hand, could easily bring the Fed hawks back to the marketplace and send the S&P500 tumbling.”
Following a "seismic" shift in market sentiment on the back of the surprisingly strong US labour reports for January, TickMill Group market analyst James Harte said today's inflation reading couldn’t have more meaning attached to it.
"With the NFP coming in almost 300% above forecasts alongside the unemployment rate dropping to its lowest levels since 1969, traders are grappling with the prospect of a resurgence in Fed hawkishness," Harte said. "The key takeaway from the report is that the US economy is holding up better than expected and therefore the Fed has more headroom to continue with rate hikes for longer or at higher levels."
Meanwhile, as earnings season progresses, Coca-Cola, AirBnB, and Marriott are among the companies reporting fourth-quarter results today.