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Wall Street’s major averages on Friday exhibited a resilient bounce after sliding during the session, finding equilibrium as chip stocks surged, counterbalancing the shock of hotter-than-anticipated inflation data.
The tech-heavy Nasdaq Composite (COMP.IND) encountered a slight setback, dipping by 0.16% to 15,880.92 points in mid-day trade. In contrast, the blue-chip Dow (DJI) saw a minor 0.06% decline to 38,750.83 points. Meanwhile, the benchmark S&P 500 (SP500) marginally gained by 0.03% to reach 5,031.19 points.
Of the 11 S&P sectors, six languished in the red, with Communication Services enduring the most significant decline, while Materials led the gainers.
Before the market opened, the U.S. Bureau of Labor Statistics reported a 0.3% month-on-month increase in the Producer Price Index (PPI) for January, surpassing the expected rise of 0.1% and reversing December’s -0.1% decrease. The Core PPI, which excludes food and energy, recorded a +0.5% month-on-month change, in contrast to a consensus of +0.1%.
This PPI observation followed closely on the heels of a robust Consumer Price Index report, underscoring the Federal Reserve’s ongoing battle with inflation.
“Like the CPI data, U.S. PPI inflation just came in hotter than expected,” Mohamed El-Erian, chief economic advisor at Allianz, commented. “Per earlier posts, take this as a further indication that the ‘last mile’ of the inflation battle is more complex than many had assumed (and still assume).”
The release of the PPI data spurred an increase in Treasury yields as trade resumed selling off bonds. The 30-year yield (US30Y) elevated by 4 basis points to 4.46%, while the 10-year yield (US10Y) rose to 4.32%. The more rate-sensitive 2-year yield (US2Y) surged by 11 basis points to 4.68%.
“PPI report: is inflation re-accelerating? 10y UST yields (US10Y) break weak resistance at 4.28%; if they break above the 100d MA at 4.33%, yields may rise to test 4.4%. The Fed has a problem: bond vigilantes might return if the market perceives that inflation is not under control,” remarked Althea Spinozzi, senior fixed income strategist at Saxo Bank.
The economic calendar also included the University of Michigan’s consumer sentiment reading for February, which remained almost unchanged from January. However, year-ahead inflation expectations rose slightly to 3.0% from 2.9% the previous month.
The CPI and PPI reports have prompted a significant shift in market expectations regarding interest rate cuts. According to the CME FedWatch tool, the likelihood of a 25 basis point rate cut by the Fed in March now stands at 11%, compared to 16% a week ago and a substantial 63% a month ago.
Despite the intensified focus on inflation, the S&P 500 index is on track to secure marginal gains for the week. A feat that would extend its streak of six consecutive weekly advances.
Amid the unsettling inflation data, chip stocks surged, counteracting the negative sentiment. This resurgence was fueled by a post-earnings upsurge in Applied Materials (AMAT). Analysts lauded the company’s results and guidance, forecasting “solid momentum” driven by demand in artificial intelligence and China.
Further brightening the mood, The Trade Desk (TTD) experienced a surge following the ad-buying digital platform’s optimistic guidance for the start of 2024.
Conversely, DoorDash (DASH) encountered a slump due to elevated labor costs overshadowing the online food delivery platform’s quarterly revenue, orders, and gross order value growth.
Roku (ROKU) also witnessed a decline as investor expectations for a stronger quarterly results beat from the streaming TV service were not met.
