US Stocks Take a Breather as Investors Brace for Inflation Update
After a week of dizzying highs, US stocks paused on Monday as investors prepared for an upcoming inflation update that could potentially test the recent rally. The Dow Jones Industrial Average and S&P 500 hovered around the flatline, while the Nasdaq Composite remained relatively unchanged following a strong week for tech stocks.
Investors are closely watching the new inflation data, which will be released later this week. The report will play a crucial role in determining the staying power of the breakout rally that followed Nvidia’s impressive results. Back in February, a hotter-than-expected Consumer Price Index (CPI) report spooked the market and led to a sell-off in stocks. Now, investors are anticipating the Personal Consumption Expenditures (PCE) index reading on Thursday, as it is the Federal Reserve’s preferred gauge of inflation. The outcome of this reading will influence the ongoing debate on the timing of a rate cut.
In addition to the inflation report, this week’s data will also provide insight into the health of the US economy. Reports on consumer and manufacturing activity will shed light on whether the bullish sentiment in stocks will continue.
Berkshire Hathaway, led by Warren Buffett, is inching closer to a $1 trillion market value after posting a record annual profit for the second consecutive year. In his annual letter to shareholders, Buffett expressed confidence in Berkshire’s longevity and acknowledged the contributions of his right-hand man, Charlie Munger.
Meanwhile, Domino’s Pizza saw its shares rise by about 8% after announcing an increase in its dividend and surpassing fourth-quarter sales estimates.
Walmart is another company drawing attention from investors. The retailer recently enacted a 3-for-1 stock split, which has cosmetic implications rather than impacting the underlying value of existing investments. This move allows investors to purchase Walmart shares at a nominally lower price.
Micron, a semiconductor company, experienced a 5% jump in its stock price after announcing the mass production of its high-bandwidth memory semiconductors for use in Nvidia’s latest artificial intelligence chip. These memory semiconductors are expected to consume less power than other options in the market.
Chinese electric vehicle maker Li Auto also made headlines as its stock surged by as much as 15% following better-than-expected fourth-quarter earnings. The company reported its first-ever annual net profit and delivered a significant increase in vehicle sales compared to the previous year. This positive news also had a ripple effect on other electric vehicle stocks, with XPeng, NIO, and Tesla all experiencing gains.
In other news, the Federal Trade Commission (FTC) filed a lawsuit to block Kroger’s proposed acquisition of Albertsons, citing concerns about rising grocery prices and reduced competition. Kroger responded by stating that blocking the merger would harm consumers and workers, as the company’s business model aims to lower prices for customers.
The Dow Jones Industrial Average underwent a shakeup as Amazon replaced Walgreens on the index. This change was made to prevent a sharp decline in the average’s retail sector weight due to Walmart’s stock split.
Overall, stocks remained slightly higher on Monday as investors awaited a data-packed week. In addition to the inflation update, reports on manufacturing, mortgage applications, and home sales are expected to provide further insights into the state of the US economy.
The recent market rally, fueled by excitement over AI stocks, has been impressive. The S&P 500 has advanced for 15 out of the last 17 weeks, a feat that has only occurred once before in the past 50 years. If the index finishes positive again this week, it will mark 16 out of 18 positive weeks, a joint record since its creation. However, Deutsche Bank warns that inflation persistence could pose a risk to the market rally, as it may lead to higher interest rates.
Warren Buffett’s annual letter to shareholders garnered attention for its investing wisdom, particularly in the context of the current AI stock frenzy. Buffett emphasized the importance of owning businesses with enduring economics and the potential for high returns on capital. He also cautioned against the casino-like behavior of today’s markets and stressed the need to avoid permanent loss of capital.
In conclusion, US stocks took a breather on Monday as investors prepared for an upcoming inflation update. The market rally will be put to the test, and the outcome of the inflation report will influence the ongoing debate on interest rates. Companies like Berkshire Hathaway, Domino’s Pizza, Walmart, Micron, and Li Auto made headlines with their recent performances. The market also witnessed a shakeup in the Dow Jones Industrial Average, and investors eagerly awaited a data-packed week that would provide further insights into the state of the US economy.
