Stocks wavered Tuesday and the Dow fell, reversing earlier gains, after the January consumer price index report showed that inflation grew at higher-than-expected 6.4% annual rate.
The Dow Jones Industrial Average slipped 156.66 points, or 0.46%, to close at 34,089.27. The S&P 500 fell 0.03% to 4,136.13. The Nasdaq Composite recouped earlier losses to close 0.57% higher at 11,960.15, boosted by technology stocks including Tesla and Nvidia, which rose 7.51% and 5.43%, respectively.
Treasury yields ticked higher, and the yield on the 6-month U.S. Treasury closed at 5.022%, above 5% for the first time since July 2007.
A stubbornly high inflation reading sent stocks sliding. The consumer price index rose 0.5% for the month, which translated to an annual gain of 6.4%. That was slightly higher than economists' estimates of the basket of goods and services rising 0.4% on the month and 6.2% on the year, according to a survey by Dow Jones. In addition, the December report was revised to show a slight gain instead of a decline.
Before the number was released, JPMorgan's trading desk predicted that an annual increase of 6.4% to 6.5% would trigger an S&P 500 loss of about 1.5% on Tuesday. It was better than the worst fears of an annual increase exceeding 6.5%, an acceleration in inflation that could have triggered an S&P 500 decline of 2.5%, JPMorgan predicted.
The report was largely better than feared, but at the same time unlikely to cause the Fed to back off from its tightening campaign.
"While there were no major surprises in today's CPI reading, it is a reminder that while inflation has peaked it could be a while before we see it moderate to normal levels," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
"The question remains if inflation will be able to fall to the Fed's target levels with the labor market as tight as it currently is," he added. "That could be the recipe for a soft landing, but it remains to be seen when the Fed will shift away from rate hikes and if the labor market will lose its resiliency."
Beyond the CPI, investors will also be watching for earnings for insights into the health of the consumer. Kraft Heinz, Boston Beer and DoorDash are all scheduled to report this week.
Dow, S&P 500 end Tuesday lower
Stocks wavered on Tuesday as traders digested January's hotter-than-expected CPI report.
The Dow Jones Industrial Average slipped 156 points, or 0.45%, to close at 34,089.79. The S&P 500 fell 0.03% to 4,136.19. The Nasdaq Composite recouped losses to close 0.57% higher at 11,960.15, boosted by technology stocks including Tesla and Nvidia, which rose 7.51% and 5.43%, respectively.
ETF flows were weak ahead of CPI, Strategas says
The stock market has largely shaken off a hotter-than-expected inflation report on Tuesday, and that could be in part because investors were cautious over the first half of February.
"Equity ETF inflows scored one of their stronger readings following the February 1st FOMC meeting (+$6.6 Bn), but data since has been largely lethargic. It's a testament to the contrasting market environment – improving equity price trends vs. deeply inverted yield curves – and one that's also reflected via YTD aggregate equity flows at lighter levels through today than prior years," Todd Sohn, ETF strategist at Strategas, said in a note to clients.
The SPDR S&P 500 ETF (SPY) saw more than $5 billion of outflows since Feb. 1, while the Energy Select Sector ETF (XLE) shed $634 million, according to Strategas.
"At the sector level, despite fresh highs from bellwether constituents (e.g. XOM, BP), Energy sector
ETFs continue to see outflows, while even Tech and ARKK's strength has yet to reveal much embrace - both segments have seen outflows thus far in 2023," Sohn added.
— Jesse Pound
Stocks fall in last hour of trading
Stocks wavered Tuesday as investors digested the January CPI report, which came in slightly higher than expected. A rally in some tech shares boosted the S&P 500 and Nasdaq.
Heading into the final hour of trading, the Dow Jones Industrial Average was down 72 points, or 0.21%, but well off lows of the day. The S&P 500 ticked 0.14% higher, and the Nasdaq rose 0.53%, led by shares of Tesla and Nvidia.
Beware faster global growth and the pressure it would put on bond prices, Ned Davis says
Ned Davis Research has less confidence in its prior view that the Treasury yield curve will steepen, and is now concerned that an "alternative view is growing in likelihood, as global growth accelerates," chief global macro strategist Joseph Kalish wrote Tuesday in a report entitled "The Bear Case for Bonds."
To be sure, Kalish said he was laying out an alternative scenario to Ned Davis's base case "to ponder the view contrary to our expectations to keep an open mind."
But at least three headwinds are blowing in the face of higher bond prices and lower yields, he said: "[T]ight labor markets, increased bond supply, and poor relative valuations," Kalish wrote.
In fact, it's possible that bond investors have "already seen a soft landing," in 2022. Now, housing activity is likely bottoming out, "nonresidential investment could also pick up, on better consumer and business confidence and an improved outlook for global growth. In fact, the economy could reaccelerate, as recession talk dissipates."
Message? Bad for bonds.
Ned Davis's model portfolio recommends holding 60% stocks (5% overweight), 35% bonds (market weight) and 5% cash (5% underweight), favors small-caps over large-caps and value stocks rather than growth stocks.
— Scott Schnipper, Michael Bloom
Investors should expect Fed to continue hiking from here
Even though January's CPI report showed that inflation is slowing on the year, it likely wasn't enough to change the Federal Reserve's course of interest rate hikes, according to Anthony Saglimbene, chief market strategist at Ameriprise.
He said that investors should expect the central bank to continue to raise rates from here, even if it's not what traders have been hoping for.
"The market still doesn't buy the idea Mr. Powell and company won't need to cut rates this year," he said. "And that's because investors fear growth may slow considerably by the end of the year and pressure the Fed to ease policy in an effort to help support the economy."
Still, the "verdict is still out on that outlook," he said, adding that scenario could add risk for asset prices.
"In a nutshell, the mixed dynamics around rates, monetary policy, and the growth outlook had traders taking a breath last week and moving some of their chips to the side ahead of this week's January CPI report," he said.
Fed's John Williams notes progress on inflation, vows to 'stay the course'
New York Federal Reserve President John Williams expressed confidence Tuesday in the progress made against inflation though he said the central bank's work isn't finished.
"When it comes to monetary policy, we must restore balance to the economy and bring inflation down to 2% on a sustained basis," Williams told a bankers group gathered in New York. "I am confident that the gears of monetary policy will continue to move in a way that will bring inflation down to 2%. We will we stay the course until our job is done."
He noted several factors that are complicating the inflation fight, such as rebounding economic growth in Europe and China. Also, he noted that after progress had been made in unclogging global supply chains, it has stagnated in recent months.
Services excluding food, energy and shelter, or "super-core" inflation, also has stayed elevated.
"So, our work is not yet done. Inflation is still well above our 2 percent target, and it is critically important that we reach that goal," Williams said.
Wharton's Jeremy Siegel expects the Fed to cut rates even after latest inflation report
The Federal Reserve is still likely to cut interest rates later this year despite stubbornly high inflation, according to Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School.
Although the consumer price index was up 6.4% on January — far above the Fed's target rate of 2% — Siegel said that the Fed's current rate hikes have already impacted prices, noting that it has been only 11 months since the Fed began its course of rate increases.
"Milton Friedman said 12-18 months before you can get any effect on prices," Siegel said on CNBC's "Halftime Report" on Tuesday afternoon. "We've had a lot of effects on prices in the first 12 months ... This is a long process, to be sure. And it's a process that the Fed has to let go through the market."
To be sure, the finance professor added that he is less certain about a rate hike following January's "unbelievable" jobs report.
"I do see a stronger economy than I saw four weeks ago," said Siegel. "That would mean, more likely that the Fed would not reduce the rate as fast in the second half in the year.
However, he believes that the odds of a rate hike remain more probable than not.
"I still think it is likely. More than 50%, that they will cut. Maybe I thought it was 80%, maybe now I think it's 50%.
He added, "I don't think anyone including the Fed knows, because they plan their increases or decreases policy 10–14 days in advance. All the further-out ones are totally data-dependent — on what they see."
— Hakyung Kim
Fed's Harker says central bank is 'close' to halting rate hikes
Philadelphia Federal Reserve President Patrick Harker said Thursday that he thinks the central bank's efforts to bring down inflation can ease sometime soon.
"In my view, we are not done yet, but we are likely close," Harker said in prepared remarks for a speech at LaSalle University. "At some point this year, I expect that the policy rate will be restrictive enough that we will hold rates in place and let monetary policy do its work."
A voting member this year on the rate-setting Federal Open Market Committee, Harker said he thinks inflation will come down considerably this year — to about 3.5%, and then 2.5% in 2024, as gauged by the personal consumption expenditures price index.
Stocks making the biggest moves in midday trading
These stocks are among those making the biggest moves in midday trading:
- Palantir — The software company's stock price soared 13%. The action comes a day after Palantir reported it made a profit in the fourth quarter, its first quarter of positive GAAP income, at $31 million. Palantir's revenue also came in stronger than expected, reporting a year-over-year increase of 18% for the quarter, while its U.S. commercial revenue grew 12%.
- First Solar — Shares of the solar company fell 2.7% after being downgraded by Evercore ISI to in line from outperform. The Wall Street firm said recent tailwinds may already be fully priced into the stock. The firm's price target implies 6% downside from Monday's close.
- Avis Budget — Shares jumped 6.5% after Avis topped expectations in its latest quarterly report. The car rental agency reported adjusted earnings of $10.46 per share, far greater than the forecasted $6.79, according to consensus estimates from Refinitiv. It posted revenues of $2.77 billion, better than the expected $2.69 billion.
- Nvidia — The semiconductor stock added 3.4% after Bank of America raised its price target on the company to $255 per share from $215 and said it is well-positioned to lead the "AI arms-race."
Click here to see more stocks making midday moves.
— Pia Singh
Nvidia can lead 'AI arms-race,' Bank of America says
Bank of America believes Nvidia could be a winner in the generative artificial intelligence space.
Perhaps best known for its use in ChatGPT, generative AI is focused on creating new outputs based on data already understood by the system. The potential of this technology prompted analyst Vivek Arya to reiterate his buy rating and up the price target by $40. The new $255 price target implies the stock could rally 17% from where it closed Monday.
"NVDA's full-stack of accelerated silicon/systems/software/developers positions it uniquely to lead the nascent generative AI arms-race among global cloud and enterprise customers," he said in a note to clients Tuesday.
CNBC Pro subscribers can read the full story.
— Alex Harring
Stocks down at midday Tuesday following CPI report
Stocks wavered Tuesday following January's slightly hotter-than-expected CPI report but ultimately slid to trade in the red, reversing gains from earlier in the day.
At midday, the Dow was down more than 320 points, or 0.94%. The S&P 500 and the Nasdaq Composite slipped 0.71% and 0.56%, respectively.
Bank of America CEO Brian Moynihan says consumers are 'in pretty good shape’ this year
Consumer spending has ticked higher to begin the year as Americans remain employed, Bank of America CEO Brian Moynihan told CNBC's Sara Eisen.
Spending rose 5% to 6% so far this year, a bit higher than in the fourth quarter, Moynihan said Tuesday in an interview. While that is a deceleration from the first quarter of 2022, when spending growth topped 12%, it is evidence of a resilient consumer, the CEO said.
"It's not going down anymore, it's not slowing down," Moynihan said. "Consumers are in pretty good shape. They have money in accounts, they have a capacity to borrow, they're employed."
Strong consumer spending is one reason Bank of America economists moved their prediction for the start of a recession further out by one quarter, to the back half of this year or early next year, Moynihan said.
"I think people [are] sort of coalescing around this idea that maybe this thing is not a soft landing, i.e. no recession, but maybe a more mild recession."
Fed's Lorie Logan warns that higher rates may be needed to tame inflation
Dallas Federal Reserve President Lorie Logan said Tuesday that the central bank needs to be prepared to keep raising interest rates if the economic data warrants.
Logan expressed concern that China's economic reopening and persistently higher services inflation could necessitate even tighter monetary policy. She also noted services inflation is not coming from Covid-related shortages but rather from an "overheated economy."
"When inflation repeatedly comes in higher than the forecasts, as it did last year, or when the jobs report comes in with hundreds of thousands more jobs than anyone expected, as happened a couple weeks ago, it is hard to have confidence in any outlook," she said in remarks prepared for a speech in Prairie View.
"We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions," Logan added.
The remarks did not directly address Tuesday's consumer price index report for January, which showed inflation running slightly higher than expectations.
Logan is a voting member this year on the rate-setting Federal Open Market Committee.
6-month Treasury yield on track to close above 5%, the first time since 2007
The yield on the 6-month Treasury notes jumped 8 basis points to 5.02% on Tuesday after the inflation report. The short-duration yield is now on track to close above 5% for the first time since July 2007.
— Yun Li
Boeing, Progressive notch 52-week highs on the S&P 500
Stocks rose Tuesday, lifting a number of companies to new 52-week highs. Here's the stocks that reached new highs on the S&P 500:
- Arch Capital Group - trading at all-time high levels back to when it began trading on the NASDAQ in 2000
- Progressive - trading at all-time highs back to its IPO in 1971
- Boeing - trading at levels not seen since Feb, 2022
- Quanta Services - trading at all-time highs back to its IPO in Feb, 1998
- Rockwell Automation - trading at levels not seen since Feb, 2022
- Analog Devices - trading at levels not seen since Dec, 2021
- Arista Networks - trading at levels not seen since Jan, 2022
- Cadence Design Systems - trading at all-time high levels back to when ECAD, Inc went public 1987
—Carmen Reinicke, Chris Hayes
First Solar tumbles following Evercore ISI downgrade
First Solar dropped more than 2.5% in Tuesday premarket trading on the back of a downgrade from Evercore ISI.
The firm moved the stock to in-line from outperform. Analyst Sean Morgan did raise the price target by by $7 to $157, but that new target still implies the stock could drop 6.1% from where it closed Monday.
He said in a note to clients that the stock's biggest tailwinds may already be "largely reflected in the current FSLR share price." CNBC Pro subscribers can click here to read the full story.