Market Volatility Continues as Investors Eye Key Inflation Reports
The stock market experienced another tumultuous session on Monday, with tech giants leading the losses as interest rate cut hopes dwindled. The S&P 500 managed to pare its losses, closing almost 0.2% higher, while the Nasdaq Composite fell 0.4%. The Dow Jones Industrial Average, which has fewer tech stocks, rose 0.8%, or over 350 points.
Dollar and Bond Yields Surge
The dollar reached a two-year high against major currency peers, with the UK pound coming under particular pressure. Meanwhile, the 10-year Treasury yield touched a 14-month high, trading around 4.8% as US bonds sold off. This surge in yields has intensified the spotlight on the Consumer Price Index reading for December, due on Wednesday, as investors worry that inflation won’t cool to the central bank’s 2% target.
Oil Prices Rise on Supply Concerns
Oil prices climbed to their highest levels in five months before paring gains, following the US imposition of tougher sanctions on Russia’s crude industry. This move threatens supply to China and India, causing Brent crude to rise to $81.01 a barrel and West Texas Intermediate to settle at $78.82.
Tech Stocks Take a Hit
The “Magnificent Seven” tech megacaps, including Nvidia, Apple, and Meta, fell during the session, with Nvidia dropping roughly 2% after the Biden administration released an updated export rule aimed at controlling the flow of artificial intelligence to “adversaries” such as China. Tesla, however, managed to close higher after falling as much as 2% earlier in the session.
Corporate News
Moderna’s stock plunged 16% after the biotech giant cut its 2025 sales forecast by $1 billion due to soft demand for vaccines. Edison International, the parent company of Southern California Edison, saw its stock drop more than 12% following an announcement that it’s being investigated by California fire authorities for its potential link to the Los Angeles wildfires. Shake Shack posted preliminary fourth-quarter results that beat expectations, but investors remained unimpressed, sending its shares down 6%.
Earnings Season Ahead
With the US dollar continuing to strengthen, companies with large international exposure are likely to discuss how their sales are weakening due to the foreign exchange crossover. According to Goldman Sachs, companies that miss sales estimates due to FX headwinds tend to underperform the market by only 0.69%, suggesting that the market often views this headwind as short-term.
Key Data Points Ahead
Investors will be paying close attention to two key data points this week: the wholesale inflation reading on Tuesday and the Consumer Price Index on Wednesday morning. These reports will provide crucial insights into the state of the economy and the likelihood of interest rate cuts this year.
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