[New York Stock Market] Mixed Close Ahead of January CPI Release... Dow Hits Record High

January Inflation Expected to Enter 2% Range
Expected Inflation in 3 Years Also Lowest in 11 Years

The three major indices of the U.S. New York stock market closed mixed on the 12th (local time) as investors awaited economic indicators such as inflation and retail sales to be released this week. With the January Consumer Price Index (CPI) growth rate expected to slow and the 3-year ahead inflation expectations dropping to the lowest level in 11 years, the market is taking a breather and adopting a cautious stance.

[Image source=Reuters Yonhap News]

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 125.69 points (0.33%) from the previous session to close at a record high of 38,797.38. The large-cap S&P 500 index fell 4.77 points (0.09%) to 5,021.84, and the tech-heavy Nasdaq index dropped 48.12 points (0.3%) to close at 15,942.55.

By individual stocks, Diamondback Energy surged 9.38% on news that it would acquire oil and gas producer Endeavor Energy Partners for $26 billion. Semiconductor company ARM jumped 29.3%. Hershey fell 0.91% after Morgan Stanley downgraded its rating to 'underweight' due to demand slowdown concerns. Salesforce declined 1.37%.

In the New York stock market, the S&P 500 index surpassed the 5,000 mark for the first time ever on a closing basis in the previous trading day. It has risen more than 5% since the beginning of the year. All three indices posted gains for the fifth consecutive week on a weekly basis. The S&P 500 and Nasdaq rose 1.4% and 2.3% respectively last week, while the Dow Jones Industrial Average also edged up slightly. Corporate earnings surprises and gains in big tech stocks offset disappointment over the delayed timing of interest rate cuts.

The biggest market focus this week is the January CPI to be released on the 13th. According to expert forecasts compiled by Bloomberg News, the January CPI growth rate is expected to slow significantly to 2.9% year-over-year from 3.4% in the previous month. If the market expectations are met, it will be the first time in 2 years and 10 months since March 2021 that the rate falls below 3%. As this indicator influences the timing of the Federal Reserve's first interest rate cut, market attention is focused on the CPI growth rate.

On the same day, the New York Federal Reserve (New York Fed) released positive survey results showing that U.S. consumers' inflation expectations have decreased. According to the New York Fed's January consumer outlook survey, the median 3-year ahead inflation expectation dropped to 2.35%, the lowest level in 11 years since 2013. This is expected to be one of the indicators that can reassure Fed officials who have stated the need for additional evidence to confirm inflation slowdown. The 1-year ahead inflation expectation among consumers remained at 3%, the same level as in December last year.

Additionally, January retail sales will be announced on the 15th, and January Producer Price Index (PPI) on the 16th.

Experts believe that whether the New York stock market continues its strength depends on whether a solid growth rate is maintained alongside the ongoing inflation slowdown trend.

Jay Hatfield, CEO of Infrastructure Capital Advisors, said, "Both CPI and PPI need to come out well, but I remain optimistic," adding, "I think the market will continue its rally over the next one to two weeks. It may stagnate while waiting for the inflation data." Mark Haefele, Chief Investment Officer (CIO) of UBS Global Wealth Management, said, "U.S. stocks have already priced in enough good news, and this rally is already well supported. However, in an ideal Goldilocks scenario with strong economy and low inflation, the S&P 500 index could reach near 5,300 by year-end."

Fed officials maintaining a cautious stance on interest rate cuts continued their remarks on the day. Fed Governor Michelle Bowman reiterated that the central bank's benchmark interest rate is at a good level to sustain downward pressure on inflation and there is no need to rush monetary easing. Thomas Barkin, President of the Richmond Fed, said inflation is approaching the target but has not yet been reached. He also noted that U.S. companies may continue their price increase practices from recent years, stating, "There is a real risk that inflationary pressures will persist."

Many companies will also report earnings this week. Among S&P 500-listed companies, 61, including Lyft, Instacart, DoorDash, and Coca-Cola, are scheduled to release their results.

Jeffrey Buchbinder, Senior Equity Strategist at LPL Financial, analyzed, "The move to the 5,000 level on the S&P 500 was supported by fundamentals such as increased chances of a soft landing and an earnings season exceeding market expectations. Although market trading at over 20 times earnings looks high in terms of price, it could be reasonable if the U.S. economy avoids recession and corporate earnings grow double digits this year."

The U.S. 10-year Treasury yield is trading slightly lower at around 4.17% compared to the previous session. The 2-year Treasury yield also edged down to about 4.47%.

International oil prices, which rose last week due to Middle East tensions and supply concerns, are moving sideways amid demand slowdown worries. West Texas Intermediate (WTI) crude oil is up $0.08 (0.1%) to $76.92 per barrel. Brent crude is trading down $0.19 (0.2%) at $82 per barrel.