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Wall Street’s major averages on Friday had recovered from their session lows and were trading mixed, as a rise in chip stocks countered more hotter-than-expected inflation data.
The tech-heavy Nasdaq Composite (COMP.IND) lost ground by 0.16% to 15,880.92 points in mid-day trade, while the blue-chip Dow (DJI) was lower by 0.06% to 38,750.83 points. The benchmark S&P 500 (SP500) was slightly up by 0.03% to 5,031.19 points.
Of the 11 S&P sectors, six were in the red, with Communication Services falling the most. Materials topped the gainers.
Before the opening bell, the U.S. Bureau of Labor Statistics said that the producer price index (PPI) increased 0.3% M/M in January, higher than the anticipated rise of 0.1% and a turnaround from December’s -0.1% decrease. Core PPI, which excludes food and energy, came in at +0.5% M/M, compared to a consensus of +0.1%.
The PPI data comes just days after a strong consumer price index report, underscoring the fact that the Fed’s fight against inflation was far from over.
“Like the CPI data, U.S. PPI inflation just came in hotter than expected,” Mohamed El-Erian, chief economic advisor at Allianz, said on X (formerly Twitter).
“Per earlier posts, take this as a further indication that the ‘last mile’ of the inflation battle is more complex than many had assumed (and still assume),” El-Erian added.
Treasury yields were higher after the PPI data, as traders resumed selling off bonds. The longer-end 30-year yield (US30Y) was up 4 basis points to 4.46%, while the 10-year yield (US10Y) was up 4.32%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 11 basis points to 4.68%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
“PPI report: is inflation re-accelerating? 10y UST yields (US10Y) break weak resistance at 4.28%; if they break above the 100d MA at 4.33%, yields may rise to test 4.4%. The Fed has a problem: bond vigilantes might return if the market perceives that inflation is not under control,” Althea Spinozzi, senior fixed income strategist at Saxo Bank, said on X.
Also on Friday’s economic calendar was the University of Michigan’s reading of consumer sentiment for February. The gauge was essentially unchanged from January. However, year-ahead inflation expectations ticked up slightly to 3.0% from 2.9% in the previous month.
The CPI and PPI reports have led to markets sharply recalibrating their expectations of interest rate cuts this week. According to the CME FedWatch tool, the odds of a 25 basis point rate cut by the Fed in March is now at 11%, versus 16% a week ago and a whopping 63% a month ago.
Still, Wall Street’s benchmark S&P 500 (SP500) index is on track to eke out marginal gains for the week. If it does, it would be its sixth straight weekly advance.
Countering some of the negative sentiment from the inflation data was a rise in chip stocks, buoyed by a post-earnings surge in Applied Materials (AMAT). Analysts praised the company’s results and guidance and expect “solid momentum” for the semiconductor equipment manufacturer from artificial intelligence and China demand.
The Trade Desk (TTD) surged, after the ad-buying digital platform guided toward a strong start to 2024.
Conversely, DoorDash (DASH) slumped, as higher labor costs took the shine off the online food delivery platform’s quarterly revenue, orders and gross order value growth.
Roku (ROKU) slid as well, as investors had hoped for a stronger quarterly results beat from the streaming TV service.
