US stocks waver after Thursday’s inflation data

At noon, the Dow Jones Industrial Average had lost its earlier gains to shed 27 points, a flatline percentage change, at 35,214, while the broader S&P 500 index shed 0.4%, and the tech-laden Nasdaq Composite was down 0.8%

12.00pm: Market volatility rises

US stock indexes were all lower around midday as volatility held sway after Thursday’s stronger than expected US inflation report, with investors nervously awaiting the Fed’s next decision on interest rates.

At noon, the Dow Jones Industrial Average had lost its earlier gains to shed 27 points, a flatline percentage change, at 35,214, while the broader S&P 500 index shed 0.4%, and the tech-laden Nasdaq Composite was down 0.8%.

“The sight of some small gains for stocks after yesterday’s sharp reversal is normally a welcome sight, but with the Volatility Index rising again it looks like this bounce could be brief,” said Chris Beauchamp, chief market analyst at online trading platform IG.

He noted that traders, investors, and strategists are falling over themselves to make guesses as to where US interest rates will be by the end of the year and suddenly a multitude of rate increases now looks to be the norm rather than a left-field guess. 

“The afternoon bounce in US stocks has already started to fade, and while the usual Friday jitters cannot be discounted it doesn’t exactly look like a rush to go bargain-hunting is currently in progress,” he added. 

On the corporate front, Expedia (NASDAQ:EXPE) shares have hit new record highs, after shrugging off the setbacks posed by Omicron to post a $276 million profit for the latest earnings report, while doubling revenue to $2.28 billion. The online travel company’s shares jumped 1.4% on Friday.

“With Airbnb (NASDAQ:ABNB) due to report next week, could Expedia (NASDAQ:EXPE) outperformance be a leading indicator for a decent set of numbers,” commented Michael Hewson, chief market analyst at CMC Markets. 

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10.00am: Markets mixed post inflation data

US stocks started mixed on Friday, with blue-chips slightly higher after Thursday’s big losses which followed higher-than-expected inflation data, as investors nervously eye Federal Reserve rate hikes expected as early as next month. 

The Dow Jones Industrial Average gained 0.3%, or 105 points, at 35,347, while the S&P 500 maintained a flatline percentage change though the tech-laden Nasdaq Composite shed 0.1%.

“We’re now entering into a quite uncomfortable territory and the very real prospect of multiple rate hikes before the summer as well as a 50 basis point increase to kick things off in March,” commented Craig Erlam, senior market analyst, UK & EMEA, OANDA.

He noted that the Fed’s James Bullard has even floated the idea of unscheduled meetings to raise rates and respond more quickly to the data, which seems rather radical. 

“But then, inflation is at a 40-year high, almost four times the Fed’s target, and is accelerating faster than most continue to anticipate,” Erlam added.

A 50 basis point hike in March is now backed quite heavily in the markets – even though a number of policymakers are still unconvinced – with further hikes following at consecutive meetings after that, the analyst noted.

“Markets are not erring on the side of hope and are pricing in plenty more hikes in the second half of the year on the belief that the central banks will once again prove too optimistic,” Erlam said. 

Despite a sharp decline in the major US equities Thursday, CNBC reported that the indices are on track to posting their third positive week in a row with slight gains.

6.30am: US stocks seen opening down

US stocks are expected to extend their slide after worse-than-expected inflation data for January raised expectations that the Federal Reserve will accelerate interest rate hikes to curb rising prices. 

Futures for the Dow Jones Industrial Average fell 0.38% in Friday pre-market trading, while those for the broader S&P 500 index dropped 0.51% and the Nasdaq 100 declined by 0.75%.

Markets closed sharply lower on Thursday, led by the Nasdaq which is weighted towards growth stocks that are most impacted by rising rates. 

The tech-heavy index closed 2.33% lower at 14,706, while the S&P 500 shed 1.81% to 4,504 and the Dow Jones fell 1.47% to 35,242.

The Consumer Price Index report showed that year-over-year inflation jumped to 7.5%, the highest since 1982 and above the 7.3% expected by economists polled by Reuters.

“The initial optimism that we might see evidence that US inflation might be slowing, and that had helped push US markets higher at the start of this week, sharply evaporated in the aftermath of yesterday’s CPI numbers,” commented Michael Hewson, chief market analyst at CMC Markets.

“The Nasdaq 100 was the biggest faller, reversing abruptly away from its 200-day MA (moving average), to open and close sharply lower, although it is still marginally higher on the week.”

The bigger than expected jump in CPI sent bond yields sharply higher with the US 10-year surging through 2%, while the 2-year yield blasted through 1.5%, rising 26 basis points (bps) on the day, to finish above 1.6%,” Hewson added.

“These accelerated moves higher are indicative of a bond market pricing in a much higher probability that the Federal Reserve could raise rates by 50bps when they next meet in March and go a lot faster over the rest of the year,” he concluded. 

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