U.S. Stocks Fall as Producer Prices Increase
U.S. stocks experienced a decline on Friday, with the Nasdaq showing the largest drop, following a report that showed higher-than-expected producer prices in January. This raised concerns about potential interest rate cuts by the Federal Reserve.
The Labor Department report indicated that producer prices had increased more than anticipated, suggesting that inflation may be picking up after a period of cooling. As a result, all three indexes posted weekly declines after five consecutive weeks of gains.
The data could lead the Fed to delay rate cuts. The hot consumer prices report earlier in the week triggered a selloff in equity markets, but hopes of rate cuts were revived by the slump in January retail sales on Thursday.
“The inflation data this week are definitely going to keep the Fed at least on pause until summer,” said Carol Schleif, chief investment officer at BMO family office.
Treasury Yields Spike After Report
Following the report, treasury yields surged as traders increased their bets on the possibility that the Fed would defer its first rate cut until after June. Greg Bassuk, Chief Executive Officer at AXS Investments, stated that “the theme of higher for longer is really the continuing market narrative” for interest rates.
Two Fed officials expressed caution regarding rate cuts. Atlanta Fed President Raphael Bostic stated that he needed more evidence of easing inflation pressures but was open to lowering rates in the next few months. San Francisco Fed President Mary Daly also emphasized that there was still work to be done to ensure stable prices despite progress.
Megacap Stocks Drop and S&P 500 Closes Above 5,000
Megacap stocks, including Meta Platforms, experienced declines, with the S&P 500 communication services index falling as a result. However, the S&P 500 closed above 5,000 for the fourth time this year due to strong corporate earnings and enthusiasm surrounding artificial intelligence.
Applied Materials saw a jump of 6.4% after forecasting better-than-expected second-quarter revenue, driven by high demand for advanced chips used in AI. Vulcan Materials also gained 5.2% after predicting a higher full-year profit, contributing to the rise of the S&P 500 materials sector index.
Roku slumped by 23.8% after projecting a larger first-quarter loss. On the other hand, crypto exchange Coinbase Global saw an 8.8% increase in its stock price after reporting its first quarterly profit since 2021.
DoorDash dropped by 8.1% as it forecasted a quarterly profitability metric below expectations due to increased labor costs.
Market Data and Volume
Declining issues outnumbered advancers on both the NYSE and Nasdaq exchanges. The S&P 500 recorded 63 new 52-week highs and three new lows, while the Nasdaq had 225 new highs and 66 new lows.
On U.S. exchanges, there were 11.18 billion shares traded, slightly lower than the moving average for the last 20 sessions.
Hot Take: Impact of Producer Prices on Interest Rate Cuts
The hotter-than-expected producer prices report has led to a decline in U.S. stocks and raised doubts about imminent interest rate cuts by the Federal Reserve. The data indicates that inflation may be picking up after months of cooling, causing concerns among investors.
The Fed’s decision to delay rate cuts is likely to be influenced by these inflation figures. While hopes of rate cuts were briefly revived by the slump in retail sales, the overall market narrative seems to favor higher interest rates for a longer period.
Investors should closely monitor future inflation data and the Fed’s response, as it will play a crucial role in shaping market sentiment and potential investment strategies.
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