Ahead of the key quarterly report from Nvidia later this week, US markets turned cautious on Friday, ending a month of rises.
While US shares initially reached new record highs, they fell 0.4% for the week for the S&P 500, while the Dow and the Nasdaq also dipped, concluding the nice little start-of-year run of gains.
Eurozone shares reached new highs, rising 1.1% for the week. Japanese shares soared by 4.3%, hitting new 34-year highs and closing in on their 1989 peak after a long recovery from their 2009 low following a 20-year 82% slump.
Chinese share markets reopened today after being closed last week for New Year, with Hong Kong rising 3.7% in a short week of trading.
Australian shares edged up 0.2% for the week, with declines in health and resources shares offset by gains in IT (following the $9.1 billion bid for Altium), consumer discretionary, and real estate shares.
Bond yields rose on the back of higher-than-expected US inflation data. Oil, metal, and iron ore prices rose, and the $A strengthened slightly despite a rise in the greenback.
Friday’s drop for Wall Street came as investors finally turned their attention to inflation and the latest data, which wasn’t encouraging. Stocks slid after yet another hot inflation report stoked fears that Federal Reserve rate cuts may not arrive until later than anticipated this year.
The S&P 500 fell 0.48% to end at 5,005.57, while the Dow lost 145.13 points, or 0.37%, settling at 38,627.99. The Nasdaq ended down 0.82% to finish at 15,775.65. All three major indexes broke their five-week winning streaks to end the week lower. The S&P 500 ended the week lower by 0.42%, while the Dow slipped 0.11%, and the Nasdaq tumbled 1.34%.
January's producer price index (PPI) was the culprit for Friday’s unease and served as an unhappy reminder that inflation is not yet subdued, justifying the Fed’s reluctance to cut rates as investors desire.
The market had forecast a rise of 0.1%, but the PPI rose 0.3% in January — the largest increase since late last year, driven by a significant increase in prices on the services side of the economy. Excluding food and energy, core PPI rose 0.5%, surpassing expectations for a 0.1% advance.
The 10-year Treasury yield spiked above 4.3% following the hot PPI reading, ending at $4.28%. At one point, the 2-year Treasury yield topped 4.7%, the highest since December, ending just under 4.7%.
With the Nvidia result pending, investors may overlook the warning from the inflation data until the Fed reiterates its stance in March, reminding them that rates won’t fall until inflation is under control.
Greg Bassuk, CEO at AXS Investments, told CNBC that investors should brace for more near-term volatility ahead. He noted a shift in expectations regarding rate cuts, stating, “Until recently, most investors were confident that rate cuts would start in the first half of the year, and it’s looking more likely that the Fed will delay until the second half.” Bassuk added, “The seesaw market is really reflective of this tug-of-war between high sticky inflation — which suggests no near-term rate cuts — and strong earnings and other signs of a robust economy, which underscores investors' belief that there’s more growth ahead for stocks.”
