NEW YORK – The stock market ended a choppy trading session essentially flat on Monday, as investors hit the pause button ahead of a highly anticipated inflation report and the kickoff of corporate earnings season later this week.
With Wall Street traders transfixed by a striking solar eclipse visible across parts of the United States, the benchmark S&P 500 index closed down a minuscule 0.04%, while the Dow Jones Industrial Average dipped 0.03% and the tech-heavy Nasdaq Composite eked out a 0.03% gain.
The muted moves came as investors braced for two market-moving events in the days ahead – Wednesday’s reading on March consumer prices, and quarterly earnings results from major banks like JPMorgan Chase, Citigroup and Wells Fargo starting on Friday.
“It’s probably a better day to watch the eclipse than it is to trade stocks,” quipped Jay Hatfield, CEO of InfraCap investment firm in New York. “I don’t think anybody wants to really reposition one way or the other ahead of CPI.”
The March consumer price index data will provide the latest temperature check on stubbornly high inflation as the Federal Reserve weighs whether to pause its aggressive interest rate hikes or press ahead with further monetary tightening.
While economists expect the annual headline inflation rate to have picked up slightly to 3.4% from 3.2% in February, the core measure stripping out volatile food and energy costs is projected to moderate a bit. On a monthly basis, however, price pressures are still expected to remain elevated.
The path of interest rates has been a key driver of market sentiment in recent months, as the Fed continues its most forceful tightening campaign since the 1980s to rein in consumer demand and ease inflationary pressures.
In the wake of surprisingly robust jobs data released on Friday showing the unemployment rate hit a 53-year low, investors recalibrated their expectations for when the central bank might implement its first rate cut. Bets are now centered around the July policy meeting rather than June.
“Wall Street is adjusting expectations to reflect the fact that the Fed could be slower to lower interest rates,” said Sam Stovall, chief investment strategist at CFRA Research. “And that now the greatest likelihood is for a rate cut to occur at the July FOMC meeting, rather than June.”
The resilience of the labor market and still-elevated inflation have fueled concerns that the Fed may need to tighten policy more forcefully and for longer than anticipated to fully subdue price pressures. That risks tipping the economy into a recession as higher borrowing costs crimp consumer spending and business investment.
“When I heard [Chicago Fed President Austan] Goolsbee was speaking at one, I was relieved because I know he’s a dove,” added Hatfield. “So, there was no need to worry about the market melting down while everyone is looking at the sun.”
Goolsbee, in remarks on Monday, argued that the central bank must be mindful of how long its restrictive policy stance can be maintained without causing undue economic pain. His dovish comments suggested he would lean toward advocating for rate cuts sooner rather than later, once inflation is on a convincing downward trajectory.
While investors monitored these cross-currents influencing the interest rate outlook, a separate but equally crucial chapter for markets is set to begin this week with the release of first quarter earnings results.
Analysts currently estimate that overall S&P 500 earnings grew by around 5% annually in the January-March period, down from projections of 7.2% growth at the start of the quarter, according to data from LSEG.
The bar appears to be set relatively low, which could provide some upside for companies that are able to clear it. However, the bigger test will be management guidance for the quarters ahead, as a slowing economy raises the risks of an earnings recession in which profits contract on a year-over-year basis.
“What will likely determine whether the stock market continues to rise, fall or tread water is the extent to which EPS [earnings per share] revisions suggest higher or lower forward earnings,” wrote John Butters, senior earnings analyst at FactSet.
On the bright side, the latest quarterly results will shed light on how well Corporate America has been navigating a challenging environment of high inflation, rising rates, and potential demand softness. Investors will be dissecting commentary to gauge the resilience of consumer spending and the outlook for margins and profits.
In Monday’s trading, Tesla shares provided one of the few bright spots, surging nearly 5% after CEO Elon Musk said the electric carmaker will unveil its latest self-driving software and robotaxi plans on August 8th. Musk’s announcements often move Tesla’s stock in outsized fashion.
Elsewhere, cryptocurrency-linked stocks like Coinbase and MicroStrategy rallied amid a rise in bitcoin prices above the $28,000 level. The energy sector lagged, weighed down by a pullback in crude oil.
But beyond a few pockets of volatility, Monday’s price action underscored the tentative holding pattern gripping markets ahead of this week’s major catalysts.
As investors await guidance from the inflation figures and a slew of corporate earnings reports, the coming days will cast crucial light on whether the Fed’s rate hike campaign has made sufficient progress to arrest rising prices without derailing the economy.
That delicate balancing act remains one of the biggest uncertainties looming over markets, overshadowing the recent performance of individual sectors or companies. For Wall Street, the highly anticipated CPI and earnings releases will help shape the calculus on whether the coast is clear to drive stocks higher, or if further turbulence lies ahead.
