Stocks Snap Back With Nerves Frayed Ahead of PCE: Markets Wrap

(Bloomberg) -- Stocks rose in a jittery session before inflation data that will help shape the views on whether a soft landing is still on the table amid the Federal Reserve’s most-aggressive tightening drive in a generation.

After erasing a rally of almost 1%, the S&P 500 came back up — halting a four-day rout. The index regained its 4,000 mark breached earlier this week in a fight to stay above a key uptrend line from the October low. The Nasdaq 100 outperformed as huge names like Microsoft Corp. and Apple Inc. rebounded and Nvidia Corp. soared 14% on a bullish forecast.

The recovery that followed the worst selloff this year for equities came with a series of twists and turns on Wall Street.

One of the reasons is that Friday’s personal consumption expenditures index — the Fed’s preferred price gauge — is expected to show acceleration. The report will likely add to a string of unfavorable figures that so far cement the case for the central bank to hold rates at 5.25% for some time, according to Bloomberg Economics’ Anna Wong. The current benchmark sits in a range between 4.5% and 4.75%.

In the run-up to the numbers, data showed US economic growth in the fourth quarter was weaker than previously estimated, reflecting a downward revision to consumer spending. A separate report highlighted unrelenting labor-market tightness.

To Michael Shaoul at Marketfield Asset Management, investors are caught between welcoming the evidence that the US economy remains on a stable footing and fearing that this resilience will provoke a stern reaction from policymakers.

“Granted things could be worse, the specter of a rapid deterioration of the economic cycle appears to have been banished, with recent economic data and corporate earnings both confirming that although growth has decelerated from the stimulus driven boom, we have not entered a period of obvious weakness,” he added.

After a raucous stock rally hit a wall this month, retail traders have retaken a bearish view that dominated their outlook for much of last year. 

Following two weeks of tepid optimism, the bull-bear spread from the American Association of Individual Investors survey flipped to -17 in the week ending Feb. 22, the most pessimistic stance since the start of 2023.

Billionaire quant investor Cliff Asness warned that US stocks are vulnerable to a macro shock if inflation doesn’t stage a spirited decline as the market expects. The co-founder of AQR Capital Management told Bloomberg Television that despite last year’s declines, equities remain expensive versus history, based on a broad assumption that price growth is set to slow.

The US economy has obstacles to overcome, though there’s still a chance for a soft landing, Jamie Dimon said. “The US economy right now is doing quite well — consumers have a lot of money, they’re spending it, jobs are plentiful,” the JPMorgan Chase & Co.’s chief told CNBC. 

“Out in front of us there’s some scary stuff,” he added.

In other corporate news, Netflix Inc. tumbled on plans to cut the price of subscriptions in over 100 countries. Domino’s Pizza Inc. sank the most in more than a decade as delivery woes and softening demand caused fourth-quarter sales to trail Wall Street expectations and led management to cut targets for revenue growth.

After the Closing Bell:

• Boeing Co. slumped in late trading as regulators said the planemaker has paused deliveries of its 787 Dreamliner as it conducts additional analysis on a fuselage component.
• Carvana Co., the online used-car retailer, reported a much wider loss than Wall Street had expected for the fourth quarter.
• Booking Holdings Inc. reported fourth-quarter revenue that topped analysts’ estimates, joining online travel peers in signaling that demand for trips remained robust in the last few months of the year despite higher prices and recession fears.
• Beyond Meat Inc. reported sales that exceeded expectations and the company said it’s making progress on efforts to bolster cash flow and lower inventory.

Elsewhere, Bitcoin is on pace for its second monthly advance, breaking with stocks and other riskier assets that have slid amid renewed concern about rising interest rates. The crypto market’s rally recovers only a sliver of the ground lost last year, when prices tumbled and the collapse of the FTX exchange caused a pullback by investors.

Key events this week:

• BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
• US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
• Russia’s invasion of Ukraine hits the one-year mark, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.9%
• The Dow Jones Industrial Average rose 0.3%
• The MSCI World index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0601
• The British pound fell 0.2% to $1.2022
• The Japanese yen rose 0.1% to 134.66 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $23,948.35
• Ether rose 2.1% to $1,652.78

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.87%
• Germany’s 10-year yield declined four basis points to 2.48%
• Britain’s 10-year yield declined one basis point to 3.59%

Commodities

• West Texas Intermediate crude rose 2.2% to $75.57 a barrel
• Gold futures fell 0.6% to $1,830.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

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