The S&P 500 is Expected to Grind to New Highs With Producer Prices, Sentiment Data Expected

On Friday, U.S. stocks experienced a retreat as the S&P 500 index pulled back from its recent record close, responding to new inflation data that confirmed a rebound in price pressures last month.

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In terms of stock performance, the S&P 500 (SPX) declined by 0.3% or 14 points to 5,015, the Dow Jones Industrial Average (DJIA) shed 0.2% or 86 points, reaching 38,686, and the Nasdaq Composite (COMP) dropped by 0.6%, or 90 points, at 15,815. The previous day had seen the S&P 500 achieve its 11th record close of the year, closing at 5,029.73 with a 0.6% increase. The Dow Jones Industrial Average gained 0.9% to 38,773.12, and the Nasdaq Composite climbed 0.3% to 15,906.17.

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The market downturn on Friday followed the release of the January producer price index report, which, much like the earlier consumer price index data, revealed a more substantial increase in prices than anticipated by economists. This raised concerns about the Federal Reserve potentially delaying planned interest-rate cuts.

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The report disclosed a 0.3% increase in wholesale prices in January, surpassing the 0.1% forecast by economists polled by The Wall Street Journal. Core wholesale prices, excluding food, energy, and trade margins, experienced an even more significant rise of 0.6%, marking the largest increase since January 2023.

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Clark Bellin, President, and Chief Investment Officer at Bellwether Wealth, commented that the stronger-than-expected Producer Price Index on Friday suggests that inflation may persist longer than investors anticipated. He noted that coupled with Tuesday's robust Consumer Price Index, this data suggests the Federal Reserve has little incentive to cut interest rates in the near future.

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Rob Swanke, Senior Equity Strategist for Commonwealth Financial Network, highlighted that, similar to the earlier CPI report, the surge in headline wholesale prices was primarily driven by rising prices for services. Services prices increased by 0.6% in January, while wholesale goods prices declined by 0.2%. However, prices of core goods increased by 0.3%, potentially raising concerns at the Fed.

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Following the PPI report, Treasury yields saw an increase, with the 10-year note yield rising 8 basis points to move back above 4.30%. The ICE U.S. Dollar Index also traded higher, gaining 0.5% to reach 104.60.

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While U.S. stocks fell sharply following the CPI report on Tuesday, the magnitude of the downturn on Friday was comparatively smaller. Economic data released on the same day also included housing starts, indicating a 14.8% decline in the construction of new homes in January as home builders scaled back new projects.

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Additionally, a preliminary consumer sentiment gauge from the University of Michigan for February showed a slight uptick to 79.6 from 79 last month. The day also marked the monthly options expiration for single-stock and index options, potentially contributing to a more volatile session.

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Two senior Federal Reserve officials, Fed Vice Chair for Supervision Michael Barr and San Francisco President Mary Daly, were scheduled to speak on Friday. Technology stocks initially gained ground, but Nvidia Corp. emerged as the sole member of the Magnificent Seven group of mega-cap tech stocks to trade in the green.

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Shares of Applied Materials Inc. surged more than 7% in early trade following the chip-equipment company's positive results and guidance delivered after Thursday's close. The market landscape continues to be influenced by economic indicators, Fed commentary, and corporate performance, shaping investor sentiment and market dynamics.

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