Wall St Worries About Inflation Data Spark Pullback

Wednesday's slightly lower closing price for US equities came one day ahead of an important inflation report that may have a significant impact on when the Federal Reserve decides to decrease interest rates.

The Fed's chosen inflation indicator, the personal consumption expenditures price index (PCE price index), is predicted to indicate that monthly prices increased by 0.3% in January.

Prior to the report, stocks had a difficult time maintaining their upward momentum following a protracted run that crested last week on excitement about the possibilities of artificial intelligence (AI) and was stoked by Nvidia's quarterly earnings.

Recent data on consumer and producer prices, along with a resilient U.S. economy and statements from Federal Reserve officials, have led the market to adjust its expectations for the timing of the Fed's first rate cut, pushing it back from March to June.

Keith Buchanan, senior portfolio manager at GLOBALT Investments in Atlanta, commented on the situation, noting that with earnings reports now behind us, the focus shifts to understanding the trajectory of inflation and the Federal Reserve's response, whether through rhetoric or a policy of prolonged higher interest rates.

"Any embers or symptoms of resurgence in pockets, or in aggregate, of inflation will definitely be taken pretty harshly by the markets."

The S&P 500 dropped 8.42 points, or 0.17%, to 5,069.76, the Nasdaq Composite lost 87.56 points, or 0.55%, to 15,947.74, and the Dow Jones Industrial Average slid 23.39 points, or 0.06%, to 38,949.02.

Mixed Economic Indicators and Market Movements

According to data released on Wednesday, the U.S. economy expanded steadily in the fourth quarter thanks to high consumer spending, but it seems to have slowed down a bit in the first quarter of 2024.

This week's statistics on manufacturing activity and weekly initial unemployment claims, in addition to the PCE data, are forthcoming. These reports will be useful in determining the health of the economy and the trajectory of interest rates.

Susan Collins, president of the Boston Fed Bank, stated on Wednesday that in order to ensure that the central bank fulfills its dual goals of price stability and maximum employment, it should be "taking time" to evaluate data before implementing any policy changes.

Furthermore, John Williams, the president of the New York Federal Reserve, stated that although the Fed still has a ways to go to reach its 2% inflation objective, there is a chance that rates would be lowered this year, contingent on the quality of the data.

UnitedHealth dropped 2.95%, ranking as the greatest Dow drag and among the major S&P 500 drags, following a report on Tuesday indicating the U.S. Department of Justice antitrust inquiry involving the healthcare giant had been initiated.

Applied Materials, a producer of semiconductor equipment, had a 2.62% decline after learning that the company had been served with a subpoena by the US Securities and Exchange Commission in February.

The creator of plant-based meat, Beyond Meat, saw a 30.72% increase in stock price as a result of its aggressive cost-cutting and price increases aimed at repairing its damaged margins and putting pressure on its heavily shorted shares.

Leading cryptocurrency companies Marathon Digital and Coinbase Global closed 2.38% and 0.7% higher, respectively, but both were well off their previous highs as bitcoin spiked to almost $64,000 before retreating.

On the NYSE, falling items outnumbered advancers by a ratio of 1.21 to 1, whilst on the Nasdaq, the ratio was 1.72-to-1 for declining issues overadvancing. There were 67 new 52-week highs and one new low for the S&P 500. There were 173 new highs and 95 new lows on the Nasdaq.