Wall Street’s key benchmarks crept upward Tuesday after U.S. stocks started the week lower in a choppy session wrought by mixed corporate earnings and renewed Federal Reserve worries ahead of a fresh inflation report due out Thursday.
After struggling for direction at open, the S&P 500 edged 0.43% higher, while the Dow Jones Industrial Average advanced 214.36 points, or +0.61%. The tech-heavy Nasdaq was up 99.28 points, or 0.71%.
Mixed fourth quarter results from U.S. tech giants have weighed on investors already grappling with a Fed readying to tighten monetary conditions and raise interest rates as soon as next month. Stocks slid last week following a disappointing outlook from Meta Platforms (FB) and posted a sharp comeback following an earnings beat by Amazon’s (AMZN). Another trove of results lies in store for investors this week from companies including Disney (DIS), Uber (UBER), Lyft (LYFT), Pfizer (PFE) and Coca-Cola (KO). Peloton (PTON) will also unveil its 2021 year-end figures amid reports that companies including Amazon and Nike (NKE) are weighing potential acquisition bids.
“The first few weeks of this year were driven much more by macro concerns — higher interest rates, pricing the Fed, inflation,” Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance Live. “Since then, we’ve had a window of opportunity where earnings took over.”
Despite a steep sell-off in Meta, other tech companies reported strong earnings that allowed the market to recover, Kaiser added.
“Now that that’s over – about 70% of S&P companies and 80% of tech companies reported earnings – we do think the focus shifts back to the macro side of the ledger this week,” he said, adding that the European Central Bank and Bank of England are tightening monetary policy along with the Fed and a series of high inflation prints are expected in coming months. “When we put that all together, we don’t think the bumpy ride is over.”
The Consumer Price Index (CPI) will be closely watched on Thursday and is likely to show another multi-decade high print on inflation, a reading that could prompt the Fed to assert the more hawkish stance it has taken on. Economists expect a headline CPI print of 7.3% in January over last year, which would mark the fastest rise since 1982, according to consensus estimates compiled by Bloomberg.
Bank of America said in a note out Monday that more downside in equities is likely — at least according to history.
The S&P 500 year-to-date-correction from early to late January was 9.8% on a daily closing price basis. During the midterm year of a U.S. presidential cycle, corrections on the S&P 500 averaged 20%, BofA technical research strategist Stephen Suttmeier pointed out. In 17 of 21 midterm years, the S&P 500 had corrections greater than 9.8%, 15 years saw corrections of 15% or more, and…