Wall Street Awaits Inflation Report for Clues on Interest Rate Cuts
The Dow led Wall Street lower on Tuesday as investors awaited a crucial inflation report and other economic data that would shape expectations for interest rate cuts from the Federal Reserve. Market focus is back on the Fed’s monetary policy path after a frenzy around artificial intelligence (AI) in the previous week eclipsed concerns about delayed rate cuts and pushed the S&P 500 and Dow Jones industrials to new peaks.
Crucial Inflation Report
The highlight for this week will be the release of January’s personal consumption expenditures price index (PCE)- the Fed’s preferred inflation gauge on Thursday. If the PCE reading hints at sticky inflation, like recent data on consumer and producer prices, it could impact Fed’s monetary policy and prompt traders to further push back their bets on the timing of rate cuts this year. Currently, 63% of traders expect the Fed to start cutting rates by June, down from nearly 98% at the end of January, according to the CME Group’s FedWatch tool. Bets for a July rate cut stand at 83.6%.
Investor Sentiment
“I think that investors are getting used to the concept that the Fed will not cut rates (soon),” said Peter Andersen, founder of Andersen Capital Management in Boston. Andersen said that hopes of a soft landing – where the Fed brings down inflation without severely hurting the economy – were supporting market sentiment. “I’m expecting a favorable print for that (PCE), indicating that the soft landing has gained more momentum.”
Further Clues
Reports on gross domestic product (GDP), jobless claims, and manufacturing activity, which are due this week, will offer further clues on the timing of rate cuts. Investors will also look forward to comments from some Fed policymakers, including voting members Atlanta Fed President Raphael Bostic, New York Fed chief John Williams, and Fed Board Governor Christopher Waller, who are scheduled to speak this week. The congressional standoff this week over government funding will also be in focus.
Market Performance
At 09:44 a.m. ET, the Dow Jones Industrial Average was down 102.05 points, or 0.26%, at 38,967.18, the S&P 500 was down 2.79 points, or 0.06%, at 5,066.74, and the Nasdaq Composite was down 8.59 points, or 0.05%, at 15,967.67.
- Tesla outperformed megacap peers, rising 2.3%.
- Micron Technology climbed 2.6% after a 4% advance in the previous session.
- Viking Therapeutics surged 64% after its experimental drug to treat obesity helped patients achieve “significant” weight loss in a mid-stage study.
- Eli Lilly’s shares fell 1.4%, while the healthcare sector slipped 0.4%.
- Norwegian Cruise Line Holdings advanced 13.6% on a forecast of a first-quarter profit due to higher ticket prices.
- Unity Software plunged 11.6% after the videogame software provider forecast full-year revenue below estimates.
- Crypto-linked stocks such as Coinbase, Marathon Digital, and Riot Platforms rose between 3.3% and 8.6% as bitcoin surged on signs big players were buying the cryptocurrency.
Market Outlook
Advancing issues outnumbered decliners by a 2.55-to-1 ratio on the NYSE and by a 2.13-to-1 ratio on the Nasdaq. The S&P index recorded 20 new 52-week highs and no new lows, while the Nasdaq recorded 82 new highs and 24 new lows.
Hot Take: What to Expect from the Inflation Report
The Wall Street is eagerly awaiting the release of January’s personal consumption expenditures price index (PCE) – the Federal Reserve’s preferred inflation gauge. This report will provide crucial insights into the direction of interest rate cuts. If the PCE reading suggests persistent inflation, it could lead to a delay in rate cuts and impact market expectations. Currently, traders are pushing back their bets on rate cuts, with only 63% expecting cuts by June. However, hopes for a soft landing and positive momentum in achieving this are supporting market sentiment. Keep an eye on reports regarding GDP, jobless claims, manufacturing activity, as well as comments from Fed policymakers and the congressional standoff over government funding this week.
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