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Financial Markets Tread Lightly Before Consumer Price Inflation Report

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Markets Stabilise After Turbulence Last Week

Carl Court

As the first consumer price inflation report of the year looms, U.S. stocks remained relatively steady on Wednesday, with only marginal gains. Yet, the impending reveal of consumer price data still holds the power to shake the markets. Cryptocurrencies also maintained their grip on investor attention, following a fake announcement regarding the approval of a bitcoin exchange traded fund (BTC-USD).

The tech-heavy Nasdaq Composite (COMP.IND) showed a modest uptick of 0.50%, reaching 14,932.28 points during late afternoon trading. Meanwhile, the S&P 500 (SP500) rose by 0.29% to 4,770.33 points, and the blue-chip Dow (DJI) advanced by 0.15% to 37,580.30 points.

Out of the 11 S&P sectors, six were in the green, with Communication Services leading the gainers, while Energy topped the losers.

Despite a ferocious rally at the end of 2023, Wall Street has faced difficulty in maintaining the same level of momentum in the new year. The absence of significant headlines or catalysts has contributed to this challenge. Notably, the S&P 500’s most substantial gain thus far occurred on Monday, driven primarily by a surge in megacap technology stocks.

With the eagerly-awaited inflation report due tomorrow and the onset of the earnings season on Friday, market participants may be on the cusp of witnessing substantial movements.

Fidelity’s Jurrien Timmer articulated the narrow breadth of the market, saying, β€œWe know that market breadth has been narrow, and one of the big questions for 2024 is whether the market will broaden, and whether that can happen in a rising market.”

He continued, β€œThe market has now advanced 37% from the October 2022 low, but…only 26% of the stocks in the S&P 500 are beating the index. That’s a very small pond to fish from. At the helm of that narrow 26% are of course the (Magnificent 7). They have been driving the bus for nine years now, which is a very long time. While from the perspective of magnitude and duration we seem to be poised for a rotation, the one missing link is a valuation extreme.”

Timmer added, β€œA positive catalyst could just be the rest of the market catching up to the big growers as the weight of a restrictive Fed is lifted. If so, we could be looking at gains of 20% or more as the market broadens. A bullish broadening. If that happens, there are a lot of forgotten stocks that could play catch-up, not only cyclically but also in a secular context.”

Cryptocurrencies continued to attract a significant portion of the spotlight. On Tuesday, the U.S. Securities and Exchange Commission’s (SEC) X account was compromised and erroneously posted an announcement of a bitcoin exchange traded fund approval. Confusion abounded as SEC officials struggled to rectify the misinformation. Meanwhile, bitcoin saw an initial spike in value following the false announcement but eventually settled down, hovering around the $46,000 mark.

Treasury yields demonstrated minimal shifts, displaying little response to a $37 billion 10-year note auction which marginally undersubscribed. The 30-year yield (US30Y) increased by 2 basis points to 4.20%, while the 10-year yield (US10Y) experienced little change at 4.02%. The more rate-sensitive 2-year yield (US2Y) was down by 2 basis points to 4.36%.

For real-time updates on Treasury yields across the curve, refer to the Seeking Alpha bond page.

Among actively traded stocks, Intuitive (ISRG) emerged as the top percentage gainer on the S&P 500 (SP500). The manufacturer of robotic surgical systems forecasted preliminary results that exceeded expectations, buoyed by a rebound in surgical procedures.

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