Another hotter-than-expected update on inflation weighs on US stocks
The latest report on inflation at the wholesale level in the US has caused concern for investors and is holding back the stock market. On Friday, the S&P 500 was down 0.3%, following its all-time high the day before, while the Dow Jones Industrial Average dropped by 0.2% and the Nasdaq composite fell by 0.7%. This report on rising prices is the most recent indication that the battle against inflation is far from over.
Rising prices exceed economists' predictions
In January, prices rose more than economists had anticipated, with a similar report earlier in the week showing that living costs for US consumers have also climbed beyond forecasted levels. In response to this report, treasury yields rose in the bond market. This increase in prices and yields makes borrowing more expensive, putting strain on the economy and impacting investment prices.
Fed interest rate cuts delayed
This report also dashed hopes of the Federal Reserve cutting interest rates in March, as traders had previously hoped. It has also dampened expectations of any easing of economic conditions in May. The yield on the 10-year Treasury rose to 4.30% from 4.24% on Thursday, reaching its highest level since November. These recalibrated expectations for rate cuts have brought Wall Street's forecasts more in line with what the Federal Reserve has been outlining, with critics saying that traders' expectations had been overly optimistic.
hope for solid economic performance
Despite the rising interest rates, there is hope that the US economy will remain strong. A preliminary report indicates that consumer sentiment is still rising, albeit not as much as economists had hoped. This is crucial as consumer spending plays a significant role in the country's economy. However, there is a potential warning sign as expectations for inflation in the coming year have ticked up to 3% in February from 2.9% in January.
positive earnings reports for some companies
Applied Materials, a company that designs and manufactures systems used to fabricate semiconductor chips, reported better-than-expected profits for the latest quarter. This news led to a 6.7% increase in their stock. Similarly, cryptocurrency company Coinbase Global saw an 11.5% jump in its stock after reporting better-than-forecasted results. The surge in cryptocurrency prices contributed to increased transaction revenue for the company. However, Digital Realty, the owner of data centers, experienced a 6.7% decline in its stock after announcing weaker results than expected.
global stock market performance
While US stocks were struggling, stock indexes in Europe and Asia were on the rise. In Japan, Tokyo's Nikkei 225 increased by 0.9% and approached its record high from 1989. It is worth noting that Japanese stocks have been rising despite the country's shrinking economy, which is now the world's fourth-largest.
Analyst comment
Neutral news: The U.S. stock market is being held in check by another hotter-than-expected update on inflation. The S&P 500 and Nasdaq composite are down, while the Dow Jones Industrial Average is slightly lower. The report on inflation at the wholesale level suggests that the battle against rising prices is ongoing, dampening hopes for rate cuts. However, Wall Street’s forecasts are aligning with the Federal Reserve’s plans. The market is hoping for a resilient economy. Companies like Applied Materials and Coinbase Global have reported stronger-than-expected profits, benefiting from AI and cryptocurrency. Digital Realty reported weaker results. International markets climbed, with Japan’s Nikkei 225 approaching a record high despite a shrinking economy.
