MARKET SNAPSHOT: Two-day Stock Rally Poised To End As Investors Watch For Inflation Signs

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02/13/2018 | 03:58 pm

By Barbara Kollmeyer, MarketWatch , Ryan Vlastelica

Apprehension builds ahead of Wednesday's CPI data

U.S. stocks fell on Tuesday, suggesting the best two-day stretch for major indexes in months wouldn't be stretched into a third following a plunge that saw equities post their worst weekly performance since early 2016 last week.

Trading was relatively subdued, following several sessions with 1% moves in both directions. Investors may be holding off on making big bets ahead of upcoming data on inflation, which could illuminate whether recent concerns were overblown.

What are main benchmarks doing?

The Dow Jones Industrial Average fell 111 points, or 0.4%, to 24,493. The S&P 500 slipped 11 points, or 0.4%, to 2,646. The Nasdaq Composite Index was down 27 points to 6,944, a decline of 0.4%.

Major indexes are coming off their second straight session with a 1% advance, a rally that represents 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, all three major indexes remain more than 7% below record levels hit last month, following massive declines seen over last week. Less than halfway through February, the market has already matched the number of 1% moves seen over all of 2017.

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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 12% 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. Shares of Walgreens rose 1.1%.

Under Armour Inc.(>> Under Armour) shares rose 12% after the sports gear maker posted stronger-than-expected revenue . Blue Apron Holdings Inc. (>> Blue Apron Holdings Inc) jumped 20% after losses that were smaller than expected and revenue beat forecasts .

PepsiCo Inc.(>> PepsiCo) fell 0.5% after the company reported fourth-quarter results that showed a decline in beverage and snack sales, though it also raised its dividend and announced a new buyback program.

Cisco earnings:High hopes pinned to return to revenue growth Inc.(>> rose 0.9%. Earlier, a report read the e-commerce retailer will lay off hundreds of workers,

General Motors Co.(>> General Motors Corporation) was little changed 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 (

The dollar was under pressure , chiefly against the Japanese yen , dropping 0.9% to Yen107.72. 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 was at 2.84%.

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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