U.S. equity indexes ended mixed Monday as investors marked time ahead of highly anticipated inflation updates this week and an initial batch of retailer earnings reports, starting with Home Depot (HD) on Tuesday. The Dow Jones Industrial Average® ($DJI) fell for the first time in nine trading days.
Early Tuesday, the Labor Department is scheduled to release its Producer Price Index (PPI) report for April, followed by the Consumer Price Index (CPI) report Wednesday. Both reports will be studied closely for clues to whether a resurgence in inflation early this year continued into spring.
The Dow industrials fell despite a 2.2% advance in Intel (INTC). The semiconductor company's shares jumped after The Wall Street Journal reported Intel is in talks over an $11 billion deal with Apollo Global Management to build a factory in Ireland.
Here's where the major benchmarks ended:
• The S&P 500® index (SPX) fell 1.26 points (0.02%) to 5,221.42; the Dow Jones Industrial Average lost 81.33 points (0.2%) to 39,431.51; the Nasdaq Composite® ($COMP) gained 47.37 points (0.3%) to 16,388.24.
• The 10-year Treasury note yield (TNX) dropped almost 2 basis points to 4.487%.
• The Cboe Volatility Index® (VIX) surged 1.05 to 13.60.
Biotechnology and food and beverage shares were among the market's strongest sectors Monday, while communication services stocks were among the biggest laggards. Energy shares took pressure despite a jump of 1.2% in WTI Crude Oil (/CL) futures, which ended above $79 per barrel after slumping last week to two-month lows.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
• American Airlines (AAL) climbed 3.7% and United Airlines (UAL) added 3.2% following reports HSBC Holdings (HSBC) initiated coverage of the companies with "buy" ratings, citing demand for international and business travel and tight capacity.
• ARM Holdings (ARM) surged 7.7% following reports the chipmaker may launch its first artificial intelligence chips next year.
• Incyte (INCY) rallied 8.6% after the biopharmaceutical company approved a $2 billion share repurchase program.
• GameStop (GME) soared 74% following reports an investor known as "Roaring Kitty" posted on Reddit (RDDT) for the first time in three years. The videogame retailer was a prominent name during the so-called "meme stocks" frenzy in early 2021.
• Nexstar Media Group (NXST) rose 1.1% after Morgan Stanley (MS) upgraded the digital media company to "overweight" from "equal weight," citing expectations for stronger advertising sales as programming grows.
• Squarespace (SQSP) rallied 13% after the website platform company announced a $6.9 billion deal to go private.
• Walgreens Boots Alliance (WBA) gained 5.4% after Bloomberg reported the company is looking for potential buyers for its $8.8 billion Boots drugstore chain in the UK.
The unofficial start of retailer earnings season begins this week with Dow member Home Depot (HD) expected to report results before the market open Tuesday. Walmart (WMT), also a Dow member and the biggest U.S. retailer by sales, is scheduled to report Thursday.
Home Depot shares have lagged the broader market as high interest rates weighed on the housing industry, pressuring the home improvement chain's sales. In Home Depot's previous quarterly report, the company disappointed investors with a forecast for just 1% growth in 2024 sales. So far this year, Home Depot is down 1.6%, while the Dow is up 4.6%.
This week's earnings calendar also includes semiconductor company Applied Materials (AMAT), along with Cisco Systems (CSCO), Deere (DE), and Sony Group (SONY).
Expecting some moderation in CPI
This week's CPI and PPI reports, along with a separate report on April Retail Sales, likely will shape investors' longer-term outlook for interest rates and Federal Reserve policy. CPI came out hotter than expected the first three months of the year, forcing the market to dial back prospects for Fed rate cuts.
Overall PPI in April is expected to have posted a month-over-month increase of 0.3%, while the core rate is expected to have climbed 0.2%, according to Trading Economics. The core rate excludes food and energy prices, which are often volatile.
Compared to year-earlier levels, overall April PPI is expected to have increased 2.2%, a slight acceleration from 2.1% in March. Core PPI in April rose 2.4% from the same month in 2023, according to forecasts. March core PPI also rose 2.4% from year-earlier levels.
Wednesday's CPI report may be the most impactful in terms of market response, in part because Fed leaders have repeatedly emphasized in recent months that they need to see more evidence inflation is dropping sustainably to its 2% long-term target.
Overall CPI in April is expected have risen 0.4%, which would equal the increase in March. Core CPI is seen coming in around 0.3%, which would be a slight deceleration from a 0.4% jump in March. Compared to April 2023, overall CPI is expected to decline to 3.4% in April from a 3.5% gain in March. Core CPI may drop to 3.6% in April from 3.8% in March, based on analysts' forecasts.
"Expectations are for an indication that core inflation is easing, but that leaves the market vulnerable if the report doesn't show progress," said Kathy Jones, Schwab's chief fixed income strategist.
"The big picture is that the Fed is on hold until there is more evidence that inflation is coming down," Jones added. "That means it will probably take three months of softer inflation readings and/or weakness in the labor market for the Fed to gain enough confidence to cut rates. We expect continued volatility as the market reacts to each indicator, but we still see yields moving lower later in the year."
Late Monday, traders priced roughly 61% odds the fed funds rate will be at least one quarter-point lower following the Federal Open Market Committee's (FOMC) September meeting, based on the CME FedWatch Tool.
Traders also saw a 97% chance the fed funds target will be held unchanged following the FOMC's June 11 – 12 meeting and a 75% chance for no change following the committee's July meeting, based on the FedWatch Tool.