[New York Stock Market] Taking a Breather Ahead of PCE... Only Dow Slightly Down

The three major indices of the U.S. New York stock market closed mixed and flat on the 27th (local time), awaiting economic indicators such as the Personal Consumption Expenditures (PCE) price index to be released this week.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 38,972.41, down 96.82 points (0.25%) from the previous session. The S&P 500 index, centered on large-cap stocks, rose 8.65 points (0.17%) to 5,078.18, and the tech-heavy Nasdaq index closed 59.05 points (0.37%) higher at 16,035.30.

In the S&P 500 index, all sectors except consumer staples, energy, and healthcare rose together. Utilities and telecommunications stocks jumped more than 1%. Department store chain Macy's rose more than 3% from the previous session, buoyed by better-than-expected earnings despite announcing plans to close 150 stores. Zoom Video also rose 8% after its earnings released the previous day exceeded market expectations. Hims & Hers Health soared 31% on strong earnings. Viking Therapeutics surged more than 120% after revealing positive results in obesity treatment clinical trials.

[Image source=Reuters Yonhap News]

Investors are showing caution as they await key economic indicators to be released this week, including the PCE price index and revised economic growth figures. Amid concerns about high valuations, a kind of pause in the market is observed. Sam Stovall, Chief Investment Strategist at CFRA Research, said, "There is no clear direction," adding, "The market is marching to the beat of different drummers." He predicted, "Until the Federal Reserve (Fed) begins cutting interest rates, investors will remain cautious and avoid diversifying into small- and mid-cap stocks."

Particularly, the January PCE price index to be released on the 29th is attracting high attention from investors as it is the Fed’s preferred inflation gauge. Since the previously released January Consumer Price Index (CPI) was stronger than expected, it could reconfirm inflationary pressures. Investors are expected to use this data to gauge the future direction of the Fed’s monetary policy. Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, said, "Investors are waiting for inflation data."

Currently, Wall Street expects the January PCE price index to rise 0.3% month-over-month, a steeper increase than the 0.2% rise in the previous month. However, year-over-year, it is expected to slow to 2.4% from the previous 2.6% increase. The core PCE price index, excluding energy and food, is estimated to rise 0.4% month-over-month and 2.8% year-over-year. If the PCE price index, following the CPI, also shows a stronger-than-expected level, inflation warnings in the market could intensify sharply.

Fed Governor Michelle Bowman also warned that inflation concerns remain. In a speech held in Florida that day, Bowman cautioned, "If policy rates are lowered too quickly, additional rate hikes may be necessary in the long term to achieve the 2% inflation target." Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, said the previous day, "In my view, there is no need to proactively adjust policy at this time," urging patience until rate cuts are warranted.

This week, speeches by Fed officials such as Susan Collins, President of the Boston Fed; Austan Goolsbee, President of the Chicago Fed; and Loretta Mester, President of the Cleveland Fed, are scheduled one after another. With early rate cut expectations in the market having cooled, their assessments of inflation and economic conditions will be key. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the interest rate futures market currently prices in over an 80% probability that the Fed will keep rates unchanged in both March and May.

The preliminary GDP growth rate for the fourth quarter of last year will be released the following day. The earlier flash estimate was 3.3%, indicating solid growth. The preliminary figure is expected to be at a similar level. Such strong growth is cited as a factor that heightens inflation concerns but also raises expectations for a soft landing of the economy. Bloomberg reported that the draft statement for this week’s G20 finance ministers’ meeting in Brazil includes the possibility of a global economic soft landing, with a faster-than-expected disinflation trend being one of the reasons. Appropriate monetary policy and falling commodity prices were also cited as disinflation factors.

Durable goods orders for January, released that day, fell 6.1% from the previous month, a larger decline than the market forecast of 5%. Durable goods orders excluding transportation equipment decreased by 0.3%. According to the S&P CoreLogic Case-Shiller Home Price Index, U.S. home prices in December rose 0.2% month-over-month and 5.5% year-over-year.

In the New York bond market, the benchmark 10-year U.S. Treasury yield hovered around 4.30%, while the 2-year yield, sensitive to monetary policy, traded near 4.69%. The dollar index, which measures the value of the dollar against six major currencies, remained flat around 103.8.

International oil prices rose for the second consecutive trading day as markets watched ceasefire negotiations between Israel and Hamas. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $78.87 per barrel, up $1.29 (1.66%) from the previous session.