[New York Stock Market] Mixed Close Near Flat Ahead of CPI

Only Nasdaq Rises Slightly by 0.09%

The three major indices of the U.S. New York stock market closed mixed near the flat line on the 9th (local time) ahead of this week's release of inflation indicators such as the Consumer Price Index (CPI).

On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average fell 157.85 points (0.42%) from the previous session to close at 37,525.16. The large-cap-focused S&P 500 index closed down 7.04 points (0.15%) at 4,756.50. Meanwhile, the tech-heavy Nasdaq index rose 13.94 points (0.09%) to 14,857.71.

Within the S&P 500, energy, materials, utilities, and financial stocks declined, while technology, communication, consumer staples, and health-related stocks rose. Boeing's stock fell more than 1% again amid ongoing investigations into the 737 Max 9 aircraft involved in a fuselage hole incident. Unity Software, which announced plans to lay off 25% of its workforce, dropped nearly 8%. Apple, which had rebounded the previous day, closed slightly lower. Tesla, which faced concerns over CEO Elon Musk's frequent drug use, also fell more than 2%. On the other hand, Nvidia hit an all-time high, and Amazon and Google Alphabet each rose more than 1%. Juniper Networks surged nearly 22% following foreign media reports that Hewlett Packard Enterprise is expected to announce a deal to acquire the company for about $13 billion this week.

[Image source=Reuters Yonhap News]

Investors showed cautious trading as they monitored movements in government bond yields ahead of this week's scheduled CPI release and corporate earnings season. The market turned mixed after a day of rebound, indicating a lack of investor confidence regarding the possibility of a future rally. Marco Kolonovich, Chief Strategist at JP Morgan, noted in an investor memo that despite the 2023 rally, persistent inflation and escalating geopolitical risks remain negative factors potentially weighing on the stock market, diagnosing that "the first half of this year is likely to be challenging."

Investors are looking to gauge the direction of future monetary policy through inflation indicators such as the CPI to be released this week and remarks from Federal Reserve (Fed) officials. The highly anticipated December CPI will be announced on the 11th. Wall Street expects the December CPI to rise 0.2% month-over-month and 3.3% year-over-year, marking an increase in the rate of growth compared to the previous month. However, the core CPI, which excludes volatile energy and food prices, is estimated to have increased by 0.2% month-over-month and 3.8% year-over-year, showing a slowdown compared to the prior month. The following day, on the 12th, the Producer Price Index (PPI), a wholesale price gauge, will also be released. If the disinflation trend falls short of expectations, it could strengthen claims that market optimism has been excessive, potentially leading to stock price corrections.

On the previous day, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, highlighted ongoing inflation concerns and stated that the first rate cut could be possible around the third quarter. Conversely, Michelle Bowman, a prominent hawk within the Fed who favors monetary tightening, welcomed the recent disinflation trend and appeared to step back from calls for further rate hikes. The next day, John Williams, President of the New York Fed and considered the third most influential Fed official, is scheduled to speak. Public remarks from Thomas Barkin, President of the Richmond Fed, and Neel Kashkari, President of the Minneapolis Fed, are also planned this week.

The Federal Open Market Committee (FOMC), which will make the first rate decision of the year, will meet on January 30-31. The market still favors a scenario of a rate hold in January followed by a possible rate cut as early as March. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the futures market currently prices in about a 65% chance that the Fed will cut rates by at least 0.25 percentage points in March. However, this probability has decreased compared to a week ago amid growing concerns that recent market optimism may have been excessive.

In this context, Jan Hatzius, Chief Economist at Goldman Sachs, reaffirmed his view during a webinar hosted by the think tank Atlantic Council that the first rate cut could occur in March. He stated, "Our baseline forecast is that the first 0.25 percentage point cut will be implemented in March, followed by a total of five rate cuts by the end of the year," adding, "March is a reasonable time for them to start (cutting rates)."

Amid somewhat retreating expectations for an early rate cut, benchmark government bond yields have risen back into the 4% range. On the day in the New York bond market, the benchmark 10-year U.S. Treasury yield rose slightly to around 4.01%. The 2-year yield, which is sensitive to monetary policy, climbed to 4.37%. Some forecasts suggest bond yields may rise further. Bill Gross, co-founder of PIMCO and known as the "Bond King," wrote on social media platform X the previous day that "the 10-year U.S. Treasury at the 4% level is overvalued, and inflation-protected securities are a better choice," adding, "I would not buy bonds." Note that bond yields and bond prices move inversely.

Meanwhile, this week marks the start of the earnings season on Wall Street with major banks such as JP Morgan, Wells Fargo, and Citigroup reporting results. According to FactSet, the net profits of S&P 500-listed companies for the fourth quarter of last year are estimated to have increased by 1.3% year-over-year, marking two consecutive quarters of growth. Market attention is currently focused on first-quarter earnings guidance.

The World Bank (WB) released its Global Economic Prospects report on the day, projecting global economic growth of 2.4% this year. This is below last year's estimate of 2.6%, continuing a three-year trend of slowing growth. The WB explained the slowdown is due to high corporate loan and mortgage rates caused by elevated interest rates, escalating geopolitical tensions, and weak global trade and investment.

International oil prices rose amid a rebound buying spree following previous declines. On the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude oil for February delivery closed at $72.24 per barrel, up $1.47 (2.08%) from the previous day.