Wall Street Wraps Up the Week on a Sour Note
Despite reaching record highs earlier in the week, Wall Street closed the week on a lower note. The S&P 500 achieved an all-time closing high on Thursday, while the Nasdaq Composite hit an intraday record on Friday before experiencing a drop of over 1% during the session. The Dow Jones Industrial Average had its worst week since October, falling 0.93%. The S&P 500 and Nasdaq also experienced losses of 0.26% and 1.17%, respectively.
Earnings season continued to wind down with mostly positive results. According to FactSet, 99% of S&P 500 companies have reported their results, with 73% reporting an upside earnings surprise and 64% reporting better-than-expected revenue results. This week, we heard from Foot Locker, Costco, and Broadcom. While Foot Locker disappointed investors, the sell-off in response seemed excessive. On the other hand, Costco and Broadcom delivered quality reports, although they were not without their imperfections. This opened the door for profit-takers to act following significant gains in both stocks.
The big economic data drop of the week came with the release of February’s nonfarm payrolls report on Friday. The report supported the “soft landing” thesis, as job additions exceeded expectations. However, this was partially offset by a higher-than-anticipated unemployment rate and softer annual wage inflation. This mix of data is favorable for investors who want to see downward pressure on inflation without a spike in unemployment that could threaten economic growth.
Leading up to the jobs report, we also received slightly weaker-than-expected private sector jobs numbers from payroll processing firm ADP and the February ISM Services report. Additionally, the Commerce Department’s January factory orders report showed a larger-than-expected drop.
Looking ahead to the coming week, there are several key macroeconomic updates to watch. The highlight will be Tuesday’s release of the February consumer price index (CPI) report. Economists are expecting a 3.1% annual increase at the headline level and a 3.7% annual increase at the core level, which excludes volatile food and energy prices. While the Federal Reserve’s preferred measure of inflation is the core personal consumption expenditures index, the CPI still factors into Wall Street’s considerations regarding the Fed’s next move on interest rates. Of particular interest within the report is the shelter index, as housing inflation has been a significant concern for the Fed.
On Thursday, the February producer price index (PPI) will be released. While this report doesn’t carry as much weight as the CPI, it provides insight into trends that may impact future CPI reports. A greater-than-expected rise in the PPI could suggest potential price hikes in the future as companies try to protect their profits by passing on higher costs to consumers.
The February retail sales report, set to be released on Thursday, will also be closely watched. Although it doesn’t provide a direct read on inflation, it offers insight into consumer spending, which accounts for approximately two-thirds of U.S. GDP. It is crucial for private consumption to remain strong, even as the economy slows, in order to support a soft landing scenario amid the Fed’s fight against inflation.
The week will wrap up with the release of the February industrial production and capacity utilization report on Friday. This report provides insight into the state of manufacturing and indirectly reflects consumer and business demand.
Despite the recent volatility and uncertainties in the market, it is important to remember that investing is a balancing act. The Federal Reserve has been cautious in altering monetary policy, and Fed Chair Jerome Powell has been praised for his handling of monetary policy over the past two years.
As we move forward, it will be essential to monitor these key economic indicators and earnings reports to gain a better understanding of the market’s direction. While Wall Street may have ended the week on a lower note, investors should remain vigilant and adaptable to navigate the ever-changing landscape of the stock market.
