The S&P 500 (SP500) on Friday retreated 0.13% for the week to end at 5,116.95 points, posting losses in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) slipped 0.42% for the week.
The benchmark index logged its second straight weekly loss, though the fall continued to be mostly marginal. Wall Street got a bit of a reality check this week in the form of hotter-than-expected consumer and producer inflation data, along with a retail sales reading that pointed to a moderation in consumer spending.
Market participants reacted to the data by dialing back their interest rate cut expectations. The Federal Reserve will likely not be too thrilled about the sticky nature of inflation, and the focus is now squarely on the central bank’s second monetary policy decision of the year next Wednesday along with its updated dot plot of rate and economic projections.
On Tuesday, the headline consumer price index (CPI) came in at 0.4% M/M for February, its largest increase since September last year. Core CPI also came in at +0.4%, higher than the estimated figure of +0.3%. However, traders took the report in stride and it ultimately did not have much effect on rate cut expectations, with the benchmark index logging gains of more than 1% in its only positive day of the week.
But the producer price index (PPI) report on Thursday along with retail sales data proved to be too much to brush off. Headline PPI surged +0.6% in February, significantly higher than the consensus of +0.3%. Core PPI came in at +0.3%, versus an estimate of +0.2%. Meanwhile, retail sales advanced 0.6% M/M in February to $700.7B, but the increase was lower than the anticipated rise of +0.8%, suggesting that perhaps the consumer was not as healthy was expected.
The spotlight is now on Fed chair Jerome Powell and the central bank’s updated dot plot to be released along with its monetary policy decision next week. Markets widely anticipate the Fed to hold rates steady, but the question now is how many rate cuts will potentially happen this year? At the beginning of 2024, investors had priced in seven rate cuts, but that is now down to only three.
“At next week’s meeting we expect the FOMC will leave rates on hold and make few changes to the post-meeting statement. In the dot plot we think there are better than even odds that the median dot for this year moves to showing two 25bp cuts by YE24 vs. the three such cuts in the December dot plot,” JPMorgan’s Michael Feroli said.
“As for our call, we are comfortable with looking for a first cut in June. It was less than six weeks ago when March was being priced in. Just as we thought that was an overreaction to soft November-December inflation readings, we similarly view recent commentary as overreacting to stronger January-February readings,” Feroli added.
While economic data and monetary policy dominated most of this week’s headlines, there were also a few notable companies that reported earnings. Oracle (ORCL) stock surged, as the cloud software giant’s quarterly results and big cloud contract signings spurred by demand for artificial intelligence impressed Wall Street. Conversely, discount store chain Dollar Tree (DLTR) put in a disappointing quarterly performance, while Dollar General’s (DG) top boss suggested that consumers were still weighed down by inflation.
Turning to the weekly performance of the S&P 500 (SP500) sectors, six ended in the red, with Real Estate falling nearly 3% and topping the losers. Energy led the gainers with an almost 4% gain. The heavyweight Technology sector slipped marginally. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from March 8 close to March 15 close:
#1: Energy +3.74%, and the Energy Select Sector SPDR ETF (XLE) +3.84%.
#2: Materials +1.51%, and the Materials Select Sector SPDR ETF (XLB) +1.62%.
#3: Communication Services +0.46%, and the Communication Services Select Sector SPDR Fund (XLC) -0.38%.
#4: Consumer Staples +0.45%, and the Consumer Staples Select Sector SPDR ETF (XLP) +0.49%.
#5: Financials +0.44%, and the Financial Select Sector SPDR ETF (XLF) +0.49%.
#6: Industrials -0.18%, and the Industrial Select Sector SPDR ETF (XLI) -0.21%.
#7: Information Technology -0.37%, and the Technology Select Sector SPDR ETF (XLK) -0.84%.
#8: Utilities -0.53%, and the Utilities Select Sector SPDR ETF (XLU) -0.45%.
#9: Health Care -0.76%, and the Health Care Select Sector SPDR ETF (XLV) -0.73%.
#10: Consumer Discretionary -1.19%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -1.25%.
#11: Real Estate -2.90%, and the Real Estate Select Sector SPDR ETF (XLRE) -2.81%.
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.