The S&P 500 Futures Slipped a Day Before the CPI Report Was Due

On Monday, U.S. stocks experienced a downturn, extending the pullback observed in the previous week from record highs. Investors are eagerly anticipating crucial inflation data scheduled for release this week, which could influence the Federal Reserve's decisions regarding the timing of potential interest rate adjustments.

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The Dow Jones Industrial Average (DJIA) declined by 132 points, or 0.3%, closing at 38,590. Similarly, the S&P 500 (SPX) saw a decrease of 17 points, or 0.3%, ending the day at 5,106. The Nasdaq Composite (COMP) also slipped by 47 points, or 0.3%, reaching 16,038. Last week, the Dow fell by 0.9%, marking consecutive weekly declines, while the S&P 500 experienced a 0.3% loss, and the Nasdaq Composite slumped by 1.2%.

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Throughout the year, the S&P 500 has demonstrated a 7% gain, maintaining an impressive 33% surge over the past 52 weeks.

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Investors are closely monitoring the release of the consumer price index (CPI) on Tuesday, with economists predicting a 0.4% increase in consumer prices and a 0.3% rise when excluding food and energy. Although the market's upward momentum showed some signs of weakening last week, Chris Larkin, Managing Director for Trading and Investing at E-Trade from Morgan Stanley, noted that the S&P 500's 25% rally from its October lows remains one of its most robust 19-week gains in the last two decades.

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Larkin observed, "Last week Fed Chair Jerome Powell didn’t back away from the idea that the Fed will cut rates later this year, although the market didn’t seem to know what to make of Friday’s mixed jobs report." He added, "But this week’s inflation data will likely determine whether the market bounces back or experiences its first back-to-back down weeks since October."

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Upcoming economic reports, including the February producer price index and a separate report on retail sales scheduled for Wednesday morning, are expected to further shape market sentiment.

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Traders in the Fed-funds futures market have already factored in a quarter-point rate cut by the Federal Reserve by June, along with at least four additional cuts by the end of 2024. Recent strong economic data and inflation figures have prompted a scaling back of earlier expectations for rate cuts, which were initially anticipated to begin as early as March, totaling six or more.

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The February jobs report, released on Friday, reinforced expectations for a rate cut in June. While the report showcased solid payroll growth, it also revealed an uptick in the unemployment rate and subdued wage growth. Thierry Wizman, Global Foreign-Exchange and Rates Strategist at Macquarie, emphasized the critical role of tomorrow's U.S. CPI report, stating, "Of course, that [rate-cut] timing could be overturned again if inflation rises again."

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Amidst market caution, one notable exception was the surge in bitcoin, surpassing the $70,000 mark. This uplift benefited companies associated with bitcoin's value, such as Coinbase Global Inc. (COIN) and MicroStrategy Inc. (MSTR), with their shares rising by 4.1% and 12.2%, respectively. MicroStrategy disclosed on Monday that it increased its bitcoin holdings by 12,000 bitcoins over the past two weeks through Sunday.

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