MARKET SNAPSHOT: Two-day Stock Rally At Risk As Investors Continue To Watch For Signs Of Inflation

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02/13/2018 | 03:30 pm


By Barbara Kollmeyer, MarketWatch , Ryan Vlastelica



Apprehension builds ahead of Wednesday's CPI data



U.S. stock-index futures pointed to a modestly lower open on Tuesday, suggesting the best two-day stretch for major indexes in months wouldn't be stretched into a third.



The futures pointed to a relatively light day of trading, following several sessions with 1% moves in both directions. Less than halfway through February, the market has already matched the number of such moves seen over all of 2017. Trading could be subdued as investors look ahead to upcoming data on inflation, which could illuminate whether recent concerns over that factors were overblown.



What are main benchmarks doing?



Dow futures slid 150 points, or 0.6%, to 24,431, while S&P 500 futures dropped 10.5 points, or 0.4%, to 2,645. Nasdaq-100 futures fell 31.50 points, or 0.5%, to 6,500.75.



On Monday, the Dow Jones Industrial Average rallied 410.37 points , or 1.7%, to 24,601.27, with 28 of the 30 components trading higher. The S&P 500 index advanced 1.4%, to 2,656, while the Nasdaq Composite Index climbed 1.6%, to 6,981.96.



That marked the second-straight winning session for U.S. stocks, which represented the best two-day percentage gain for the Dow since 2015, and the best such stretch for both the S&P and the Nasdaq since June 2016.



However, the Dow and S&P are both still 7.6% off record highs hit last month. The Nasdaq is 7% below its own all-time high.



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In addition, there was hesitation overseas, with European stocks failing to follow Wall Street's lead and Asia giving up some gains by the close.



The next big clue for market direction could come from Wednesday's January consumer price inflation data. There are concerns that if CPI comes in higher than expected, it could spark another selloff, as worries about higher prices and its effect on the Federal Reserve's interest-rate hiking plans triggered last week's dramatic volatility and declines.





Economists polled by MarketWatch are expecting at 0.4% rise for headline inflation, and a 0.2% gain for core inflation, which strips out food and energy costs.



Investors have also been considering a $4.4 trillion Federal budget that U.S. President Donald Trump has proposed, which would see the deficit nearly double in 2017 and rise some $7 trillion over the next decade. Of course, few expect the budget in its current form will be enacted by Congress, especially given it pushes for deep cuts in social programs. But the tax cuts signed into law in December and the spending deal reached last week are already seen ballooning the deficit.





What are strategists saying?



"If inflation continues to pick up, the equity market will continue to struggle from here. If worries about inflation come true, the problem is that central banks will have no choice but to raise rates, which won't just have an impact on the equity markets but also on the real economy," said Nick Clay, the lead manager of the BNY Mellon Global Equity Higher Income Fund.



"The recent 10% correction basically just unwound the gains we saw over January. Valuations remain high; the U.S. is one of the most expensive markets in the world. I think volatility will remain elevated, and we could easily see another 15% downside. Only then will valuations start to become a little more reasonable."





Which stocks are active?



AmerisourceBergen Corp.(>> AmerisourceBergen) shares jumped 13% in premarket action after Walgreens Boots Alliance Inc.(>> Walgreens Boots Alliance) reportedly made a takeover approach for the drug distributor, according to sources cited by The Wall Street Journal.



Under Armour Inc.(>> Under Armour) shares rose 9% in premarket after the sports gear maker posted stronger-than-expected revenue . Blue Apron Holdings Inc. (>> Blue Apron Holdings Inc) jumped 7.5% after losses that were smaller than expected and revenue beat forecasts .



PepsiCo Inc.(>> PepsiCo, Inc.) earnings are still ahead. MetLife Inc.(>> MetLife) and Baidu Inc.(>> Baidu) are due after the close.



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Amazon.com Inc.(>> Amazon.com) could be in focus after a report that the e-commerce retailer will lay off hundreds of workers.



General Motors Co.(>> General Motors Corporation) shares could be in the spotlight after the auto maker said it would close an auto plant in South Korea , affecting 2,000 workers and leading to a charge of $850 million.



What's on the economic docket?



Cleveland Fed President Loretta Mester said the sharp moves in the stock market over the past 10 days remain "far away" from being large enough to spill over and damage the economy.



The index of small-business optimism from the National Federation of Independent Businesses climbed two points to a reading of 106.9 in January.



What are other assets doing?



Europe stocks traded lower , while in Asia, Japan's Nikkei 225 dropped 0.6%, bucking a mostly stronger session for other indexes (https://www.npr.org/2018/02/12/584531641/when-did-marriage-become-so-hard).



The dollar was under pressure , chiefly against the Japanese yen , dropping 1% to 107.44. The ICE U.S. Dollar Index fell 0.54% to 89.722. Gold futures rose 0.4% as the dollar weakened .



The yield on 10-year Treasury notes slipped to 2.831% from 2.857% seen late Monday.





Crude-oil moved lower. The International Energy Agency said booming U.S. shale supply will likely overwhelm oil demand and weigh on prices this year . Bitcoin slipped around 4% to $8,544.



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