[New York Stock Market] Slight Decline Amid PCE Caution... S&P Down 0.38%

The three major indices of the U.S. New York stock market closed slightly lower on Monday, the 26th (local time), as investors awaited the release of the Personal Consumption Expenditures (PCE) price index scheduled for this week.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average fell 62.30 points (0.16%) from the previous close to finish at 39,069.23. The S&P 500, which focuses on large-cap stocks, closed down 19.27 points (0.38%) at 5,069.53, while the tech-heavy Nasdaq dropped 20.57 points (0.13%) to 15,976.25.

Among the S&P 500 sectors, eight out of eleven sectors declined, excluding energy, consumer discretionary, and technology. Notably, communication stocks fell more than 2%. On a company basis, Alphabet’s stock slid over 4% amid growing controversy surrounding Gemini. Amazon, which joined the Dow index starting this day, showed a slightly lower close. In contrast, Domino’s Pizza rose nearly 6% on better-than-expected net earnings. Micron Technology jumped more than 4% after announcing the start of production of HBM3E semiconductors used in Nvidia’s H200 graphics processing units (GPUs). Tesla rose nearly 4%, and Nvidia, a leading AI stock, showed a slight gain.

[Image source=Reuters Yonhap News]

Investors are awaiting key economic indicators released this week, including the PCE price index and revised GDP figures, while also watching whether the AI rally, fueled by Nvidia’s strong earnings, will continue. Despite last week’s stronger-than-expected Consumer Price Index (CPI) dampening hopes for an early rate cut, the AI rally helped improve overall market sentiment. The Dow and S&P 500 both hit record highs last Friday.

Alex McGrath, Chief Investment Officer (CIO) at NorthEnd Private Wealth, analyzed, "AI appears to be providing momentum for this rally." Michael Landsberg, CIO of Landsberg Bennett Private Wealth Management, diagnosed, "Better-than-expected earnings and AI optimism have overshadowed market concerns about tightening due to inflation." John Stoltzfus, Chief Investment Strategist at Oppenheimer, conveyed the mood, saying, "Investor sentiment has improved due to better-than-expected earnings."

However, as corporate earnings reports conclude, attention is expected to shift back to the Federal Reserve’s monetary policy direction. The January PCE price index, to be released on the 29th, is especially focused on as it is the Fed’s preferred inflation gauge. Wall Street expects the January PCE price index to rise 0.3% month-over-month, a steeper increase than December’s 0.2%. However, on a year-over-year basis, it is forecasted to rise 2.4%, slowing from December’s 2.6%. The core PCE price index, excluding energy and food, is estimated to increase 0.4% month-over-month and 2.8% year-over-year.

If the PCE price index shows a stronger-than-expected level, inflation warnings in the market could intensify rapidly. Stoltzfus said, "The market needs to digest the possibility that the Fed will remain very cautious about inflation rigidity regarding the timing and magnitude of rate cuts."

Additionally, this week features a series of speeches by Fed officials, including Jeffrey Schmid, President of the Kansas Federal Reserve Bank; Raphael Bostic, President of the Atlanta Fed; Susan Collins, President of the Boston Fed; Austan Goolsbee, President of the Chicago Fed; and Loretta Mester, President of the Cleveland Fed. Their assessments of inflation and economic conditions will be crucial amid waning expectations for early rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the futures market currently prices in an over 86% probability that the Fed will keep rates unchanged in May.

On the 28th, the revised Q4 U.S. GDP growth rate and the Conference Board’s February Consumer Confidence Index will be released. Bank of America (BoA) reported in its annual survey that fears of a recession have significantly decreased and optimism has spread. Among 240 respondents, only 4% expect a U.S. recession this year, contrasting with 85% who anticipated a recession last year. Furthermore, they forecast three rate cuts this year. Additionally, 77% believe the New York stock market bull run will continue beyond this year.

On the same day, U.S. Treasury yields rose in the New York bond market. The benchmark 10-year U.S. Treasury yield hovered around 4.28%, while the 2-year yield, sensitive to monetary policy, was around 4.72%. The dollar index, which measures the dollar’s value against six major currencies, fell more than 0.1% to 103.7.

Oil prices rose on a rebound buying spree as investors monitored the situation in the Middle East. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $77.58 per barrel, up $1.09 (1.43%) from the previous day.