| | | Closing Market Update Stocks Extend Rebound Despite Weak Retail Sales
schwab.com
The S&P 500 index notched a fresh record high as the market looked past soft retail numbers and awaits an inflation update.
(Thursday market close) The S&P 500® index (SPX) climbed to a record closing high Thursday as the market extended a sharp and broad bounce-back from an early week slump. Investors shrugged off a surprisingly weak Retail Sales report and awaited Friday's Producer Price Index (PPI).
Early Thursday, the Census Bureau said January retail sales tumbled 0.8% from December, much weaker than the 0.2% decline analysts expected. December sales were also revised lower, to a 0.4% monthly gain. The sales figures stoked concern the economy may be slowing even as the Federal Reserve signals a reluctance to lower short-term interest rates until it's convinced inflation is under control.
Another slew of earnings reports offered investors a mixed bag, though strength in a few mega-cap companies, including Meta Platforms (META) and Tesla (TSLA), helped buoy the major indexes.
Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, noted the soft retail sales represented just one data point that could be linked to seasonality. Still, "it may suggest the consumer is beginning to pull back on spending," he said. Friday's PPI report will be heavily scrutinized for clues to whether a stronger-than-expected Consumer Price Index (CPI) report was an aberration or a sign that inflation pressures are perking up.
"Tomorrow's PPI report will be key for market expectations as to whether CPI was just a 'one-off,'" Peterson said. "It's too early to say, but if inflation starts to show signs of life, it could call into question whether the Fed 'pivoted' too early in December, which led to 'easier' financial conditions as Treasury yields fell and may have fueled a growth spurt."
Here's where the major benchmarks ended:
- The S&P 500 index rose 29.11 points (0.6%) to 5,029.73; the Dow Jones Industrial Average® (DJI) gained 348.85 points (0.9%) to 38,773.12; the Nasdaq Composite® (COMP) added 47.03 points (0.3%) to 15,906.17.
- The 10-year Treasury note yield (TNX) fell more than 2 basis points to 4.242%.
- The Cboe Volatility Index® (VIX) lost 0.37 to 14.01.
Bank shares were among the market's strongest performers with an assist from Wells Fargo (WFC), whose shares jumped more than 7% following reports a bank industry regulator had ended a penalty it imposed after a fake accounts scandal. Energy companies also posted outsized gains behind a rebound in crude oil prices. Also, small-cap shares extended a sharp upswing as the Russell 2000® Index (RUT) gained 2.5% and ended at its highest level since late December.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly results, or other news:
- Cisco (CSCO) sank 2.4% after the tech company reported a 6% decline in quarterly revenue and released weaker-than-expected guidance for the full year. The company also announced a downsizing that would result in laying off about 5% of its workforce.
- Coinbase (COIN) gained 3.3% after JPMorgan (JPM) upgraded the crypto exchange to "neutral" from "underweight," citing "meaningful bitcoin price appreciation" after the cryptocurrency topped $50,000 earlier this week, its highest level in over two years.
- Deere (DE) fell 5.2% after the farm and construction machinery maker topped quarterly earnings expectations but also reduced its full-year profit guidance, citing expectations agricultural fundamentals will "normalize" from record-high grain prices the previous two years.
- Penn Entertainment (PENN) plunged 14% after the company, which owns the ESPN Bet sports gambling platform, fell short of analysts' quarterly earnings forecasts.
- Shake Shack (SHAK) rallied 26% after the burger chain exceeded Wall Street's earnings and revenue expectations.
- Stellantis (STLA) jumped 6.6% after the company, parent of Chrysler and Fiat auto brands, announced a new share buyback program.
- Tripadvisor (TRIP) rose 9.2% after the online travel platform's earnings and revenue surpassed expectations.
- Zebra Technologies (ZBRA) surged 12% after the barcode technology company posted a sharp earnings jump and provided stronger-than-expected profit guidance.
Among other companies, Applied Materials (AMAT), a major supplier of manufacturing equipment and services to semiconductor makers, is expected to report results after Thursday's close. Applied Materials shares have gained nearly 17% so far this year and Wednesday closed at a record around $189.
Friday's earnings calendar is relatively light, meaning investors may shift focus to next week and what some consider the unofficial start to retail earnings season, with Home Depot (HD) and Walmart (WMT) scheduled to report results Tuesday.
Semiconductor leader Nvidia (NVDA) is scheduled to report Wednesday. Nvidia shares lead the "Magnificent Seven" companies with a gain of nearly 48% so far in 2024, which follows a 239% rally in 2023 fueled by escalating bullishness over demand for AI-capable chips.
Inflation concerns resurface
January retail sales added to this week's list of economic readings that disappointed investors, dampening hopes the economy might be heading for a "soft landing" where inflation returns to the Fed's 2% long-term target while recession is avoided.
Also Thursday, the Federal Reserve's Industrial Production, a measure of manufacturing output, unexpectedly contracted in January, dropping to –0.1% from unchanged in December. Analysts expected a rise of about 0.4%. According to the Fed, winter weather contributed to the decline.
Inflation worries resurfaced Tuesday after the Labor Department said overall CPI rose 0.3% in January from December, while the core rate, which excludes food and energy, gained 0.4%. Both increases exceeded expectations. Year-over-year core CPI also exceeded expectations at 3.9%, nearly double the Fed's target.
This week's economic news and market reaction puts a particularly bright spotlight on Friday's PPI report.
Like CPI, PPI readings steadily declined over the past year. On Wednesday, the government downwardly revised December PPI to a decline of 0.2% from a 0.1% drop previously. The core rate was adjusted to –0.1% from unchanged previously.
For January PPI, analysts expect modest gains of 0.1% for both overall and core PPI. If the numbers come in like that, it won't negate the impact of CPI, which tracks different prices, but could provide some relief that at least inflation continues to go in the right direction.
Compared to year-earlier levels, January overall PPI is expected to rise 0.6% and the core rate is expected to increase 1.6%, according to Trading Economics.
The weaker retail sales may raise concerns over the economy but could hold a silver lining for investors. Slower consumer spending could help bring inflation down further, potentially boosting prospects for Fed rate cuts the market has long anticipated.
Still, rate cut expectations changed little Thursday. Traders currently price nearly 90% odds the fund target will remain unchanged at 5.25% to 5.5% following the March FOMC meeting, according to the CME FedWatch Tool. The tool shows a 60% chance the fed funds rate will be unchanged after the FOMC's May meeting, down slightly from Wednesday.
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