Major U.S. stock indexes experienced a roller coaster session on Tuesday, whipsawed by concerns over upcoming inflation data that could influence the Federal Reserve’s monetary policy stance. The hard-hitting technology sector bore the brunt of the sell-off before paring some losses, while traditionally defensive sectors like utilities offered a buffer.
The Dow Jones Industrial Average plunged over 300 points at its nadir, continuing its struggle to reclaim the critical 50-day moving average resistance level. However, dip buyers emerged, allowing the blue-chip index to trim its deficit to a 0.4% decline by the closing bell. Participation was robust, with higher trading volumes compared to Monday’s lethargic session.
The tech-heavy Nasdaq Composite fared comparatively better, shedding just 0.2% as investors sought the perceived safety of big-cap tech giants like Google parent Alphabet (GOOGL). The S&P 500, the main benchmark for fund managers, slipped 0.3%, flirting with its 21-day exponential moving average, a closely watched short-term trendline.
Beneath the surface, clear sector rotation played out. Utilities, real estate, and technology outperformed, while cyclical sectors like industrials and financials were punished. Small caps displayed tenacity, with the Russell 2000 index losing just 0.2% as it continues battling for control of its 21-day line amid the volatility surge.
All eyes are on the Labor Department’s Consumer Price Index (CPI) report, scheduled for release on Wednesday morning. Economists forecast annual inflation rising to 3.5% in March from 3.2% the prior month. Core inflation, which strips out volatile food and energy components, is projected to moderate slightly to 3.7% year-over-year.
The magnitude of the inflation prints carries substantial implications for the Federal Reserve’s rate hike trajectory. Stubbornly high inflation could embolden the central bank to extend its most aggressive tightening campaign since the 1980s. Conversely, a marked cool-down might allow policymakers to pause rate increases after the May meeting.
“The market remains hyper-focused on any data that could shift the Fed’s thinking on rates,” said Quincy Krosby, chief global strategist at LPL Financial. “A hot CPI print will likely fuel fears of more hawkishness from the central bank.”
Tesla (TSLA) Momentum Stalls, Nvidia (NVDA) Slips Despite China Cheer
While macroeconomic forces dictated the broader tone, several high-profile Individual names captured investors’ attention.
Tesla (TSLA) shares initially spiked after CEO Elon Musk announced the company would unveil its hotly-anticipated “robotaxi” on August 8th and refuted rumors about scrapping an affordable electric vehicle. However, the electric vehicle behemoth pared gains to just 1% by the close as analysts expressed skepticism, citing uncertainties around autonomous driving and Musk’s ambitious new vehicle plans.
Nvidia (NVDA), a leader in artificial intelligence chips, dropped 3% despite an encouraging CNBC report that its sales in China could exceed lowered forecasts. The decline may reflect competitive pressures after Google Cloud unveiled its own AI chips at a product event on Tuesday. Nvidia remains a holding in the prestigious IBD Leaderboard model portfolio.
In the banking sector, shares of JPMorgan Chase (JPM), American Express (AXP), and Visa (V) retreated ahead of earnings from major lenders slated for the end of this week. Investors are bracing for details on how higher interest rates have impacted lending profits and credit quality.
Bright Spots and Sector Rotations
While the prevailing tone was one of caution, pockets of strength emerged across various sectors and investment styles. The MarketSmith Growth 250 highlighted a potential rotation into insurance, retail, and precious metals stocks.
Top gainers included insurtech disruptor Root (ROOT), teen apparel retailer American Eagle Outfitters (AEO), and gold miner Eldorado Gold (EGO). Among the elite IBD 50 universe of leading growth stocks, online travel play MakeMyTrip (MMYT) and oil & gas producer Permian Resources (PR) outperformed.
Elsewhere, India’s ICICI Bank (IBN) jumped nearly 3% as it attempted to clear a flat base buy point around $26.66, according to MarketSmith analysis. United Rentals (URI), Featured As Monday’s “Stock of the Day,” remains in a constructive flat base pattern with a $732.37 ideal entry.
As Wall Street heads into a fresh batch of earnings from major banks, the turbulent price action underscores the fierce tug-of-war between bulls and bears. The inflation report looms large, with potential ramifications that could ripple through assets of all stripes in the days and weeks ahead.
