The S&P 500 (SP500) on Friday retreated 0.42% for the week to end at 5,005.57 points, posting losses in three out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) slipped 0.34% for the week.
Some market participants and analysts might say that this week’s pullback was perhaps even long overdue. Coming into last Monday, Wall Street had posted a five-week win streak, and going back even further, had notched fourteen positive weeks in the last fifteen. The main drivers of that advance had been aggressive Federal Reserve interest rate cut expectations and an extended rise in technology stocks, especially megacap names.
The inexorable rally came to a head last week when the benchmark S&P 500 (SP500) crossed and closed above the historic 5,000 points mark for the first time ever.
Then, this week, Wall Street received a reality check. In a double whammy, a hotter-than-anticipated consumer price index (CPI) report on Tuesday was followed up by similarly strong producer price index (PPI) data on Friday. The readings showed that inflation could prove to be stickier than thought and that the Fed’s fight against it was far from over.
The indicators also led to market participants dialing back their expectations of a 25 basis point rate cut by the Fed in March. Moreover, traders shed bonds, driving U.S. Treasury yields to their highest levels of the year during the week.
“The Fed has sought to dampen investor optimism for potential spring rate cuts by emphasizing that it needs more evidence that price stability improvements are durable and that a shift to accommodative monetary policy won’t spark a resurgence in inflation. To that end, this week is a setback, with CPI data depicting stronger-than-expected January inflation and today’s PPI showing that wholesalers jacked up prices during the same month,” José Torres, senior economist at Interactive Brokers (IBKR), said.
“Future data could also depict inflation being persistent vs. this week being an isolated setback. Prices for services, goods, and gasoline have all climbed this month, while in January, the inflation-sticky services category was the only culprit that propelled the indices higher. In my view, this week’s CPI and PPI data may rule out a June rate cut while certain policymakers have expressed renewed expectations for delaying a dovish shift,” Torres added.
Though inflation grabbed most of the spotlight this week, the earnings season also continued to garner some attention. Some of the notable companies that reported their results were drugmaker Biogen (BIIB), soft drinks behemoth Coca-Cola (KO), the world’s largest hotel operator Marriott (MAR), vacation rental company Airbnb (ABNB), Kool-Aid and Jell-O-parent Kraft Heinz (KHC), networking giant Cisco (CSCO), and cryptocurrency exchange Coinbase (COIN).
Next week, Wall Street darling Nvidia (NVDA) will be reporting results, along with retailer Walmart (WMT).
Turning to the weekly performance of the S&P 500 (SP500) sectors, seven ended in the green, led by Materials and Energy. Technology slipped nearly 2.5% and topped the losers. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from February 9 close to February 16 close:
#1: Materials +2.36%, and the Materials Select Sector SPDR ETF (XLB) +2.44%.
#2: Energy +2.17%, and the Energy Select Sector SPDR ETF (XLE) +1.57%.
#3: Financials +1.41%, and the Financial Select Sector SPDR ETF (XLF) +0.26%.
#4: Utilities +1.35%, and the Utilities Select Sector SPDR ETF (XLU) +1.59%.
#5: Health Care +1.02%, and the Health Care Select Sector SPDR ETF (XLV) +1.12%.
#6: Industrials +0.85%, and the Industrial Select Sector SPDR ETF (XLI) +0.92%.
#7: Consumer Staples +0.15%, and the Consumer Staples Select Sector SPDR ETF (XLP) +0.23%.
#8: Real Estate -0.18%, and the Real Estate Select Sector SPDR ETF (XLRE) -0.16%.
#9: Consumer Discretionary -0.77%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -0.49%.
#10: Communication Services -1.61%, and the Communication Services Select Sector SPDR Fund (XLC) -0.28%.
#11: Information Technology -2.46%, and the Technology Select Sector SPDR ETF (XLK) -2.54%.
For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.
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