What happened in the markets: 12 Feb - 16 Feb 2024
Stocks experienced a decline on Friday, ending the week in negative territory due to concerns sparked by a second inflation report. The report raised worries that the Federal Reserve might delay interest rate cuts.
The January producer price index, released on Friday, saw a larger than expected 0.3% increase, while the core PPI, excluding food and energy prices, surged by 0.5%. The 10-year Treasury yield rose above 4.3% following the high PPI reading, and the two-year Treasury yield reached over 4.7%, its highest level so far this year.
Earlier in the week, the consumer price index exceeded forecasts, climbing by 3.1%. The CPI and PPI reports prompted a significant shift in market expectations for interest rate cuts this week.
According to the CME FedWatch tool, the likelihood of a 25 basis point rate cut by the Fed in March is now at 11%, compared to 16% a week ago and a substantial 63% a month ago.
All three major stock market indexes broke their five-week winning streaks, with the S&P 500 closing down 0.4%, the Dow Jones slipping 0.1%, and the Nasdaq Composite falling 1.3%.
Last week at a glance
Big Funds Reveal Their Latest Positions - 13F Season
Berkshire Hathaway, the investment giant founded by Warren Buffett, made significant changes to its investment portfolio in Q4 2023, as revealed in its latest 13F filing. The company exited its investments in Brazilian fintech StoneCo, U.S. homebuilder D.R. Horton, and insurer Markel Corp. Additionally, it reduced its stake in Paramount Global, leading to a 6.8% decline in the company's stock during after-hours trading.
On the other hand, Berkshire increased its holdings in Sirius XM Holdings, Occidental Petroleum, and Chevron. It also decreased its stakes in HP Inc. and Paramount Global, while its stake in Apple slipped slightly. The company maintained its stakes in Bank of America and Coca-Cola, according to the 13F filing available on the SEC website.
Also, Michael Burry - of Big Short fame - and his hedge fund Scion Asset Management took on new stakes in Warner Bros Discovery, Toast, Citigroup and also boosted its stakes in JP and Alibaba.
Nvidia Surpasses Google In Market Cap
Just two days after securing the No. 4 position, Nvidia surpassed Google parent Alphabet’s market cap on Wednesday to become the third largest U.S. company. The AI chip-making powerhouse is also betting on other AI-related companies and has been on an absolute tear, with its stock more than tripling in value over the past 12 months.
Hotter Than Expected CPI & PPI Reports
Last week, stocks experienced a slight decline while Treasury bond yields rose, following the release of higher-than-expected U.S. consumer price index (CPI) and producer price index (PPI) inflation reports for January.
Despite a sharp drop after Tuesday's CPI inflation report, stocks rebounded and the S&P 500 nearly reached new all-time highs. However, investors may remain apprehensive. The question arises whether inflation can continue to decrease, as it has over the past year, despite ongoing robust economic growth, or if this marks the beginning of an unfavorable trend.
Inflation Trend Still Favourable Despite Hotter Reports
Last week's January CPI and PPI data may have disappointed investors, but analysts do not view it as indicative of a lasting trend of increased inflation. The headline CPI figure of 3.1% year over year exceeded expectations of 2.9%, but notably fell short of December's 3.4%. Core inflation, which excludes food and energy, remained relatively stable at 3.9% year over year, surpassing expectations of 3.7% and aligning with December's figures.
June Instead Of March?
The inflation data from last week has also delayed the anticipated Federal Reserve interest rate cuts, which the market now predicts will commence in June. Many analysts believe that the expectation of approximately four rate cuts beginning in June is more in line with the Fed's stance and their projection of three to four cuts in 2024.
Top movers & shakers🎢
Applied Materials (AMAT) - rose 6.4% to a record high of $202 after stronger-than-expected quarterly results.
Coinbase Global (COIN) - up nearly 9% after an unexpected profit and higher-than-expected revenue for the fourth quarter.
DoorDash (DASH) - dropped 8.1% after worse-than-expected loss.
Dropbox (DBX) - dropped 23% after disappointing first-quarter revenue guidance.
Nike (NKE) - dipped 2.4% after reports of the company plans to lay off 2% of its workforce, or over 1,600 people, as part of an effort to cut $2 billion in costs over the next three years.
Trade Desk (TTD) - up 17% after the company released stronger-than-expected first-quarter guidance.
The week ahead: 19 Feb -23 Feb 2024
Next week, investors will not have much economic data to analyze, following conflicting reports on GDP, jobs, retail sales, and CPI inflation. This has left the debate about the economy's direction unresolved, with uncertainty about whether it is at risk of overheating or drifting into a recession.
However, the upcoming heavyweight earnings reports from Nvidia and Walmart could significantly impact sentiment in their respective sectors. Nvidia, which has seen a more than 45% increase in its year-to-date performance, is being hailed as the AI superstar of the year. On the other hand, Walmart is considered one of the better defensive plays of the year and is also set to undergo a three-for-one stock split at the close of trading on Friday.
Earnings
Tuesday, February 20 - Walmart (WMT), Home Depot (HD), Caesars Entertainment (CZR), Palo Alto Networks (PANW), and Medtronic (MDT).
Wednesday, February 21 - Analog Devices (ADI), Nvidia (NVDA), Etsy (ETSY), Marathon Oil (MRO), Rivian Automotive (RIVN), and Lucid Group (LCID).
Thursday, February 22 - Dominion Energy (D), Moderna (MRNA), Intuit (INTU), Booking Holdings (BKNG), and Carvana (CVNA).
Sources:
https://seekingalpha.com/article/4671185-wall-street-breakfast-what-moved-markets
https://seekingalpha.com/article/4671198-wall-street-breakfast-week-ahead
https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/stock-market-weekly-update
https://www.schwab.com/learn/story/schwab-market-update
*Disclaimer: This information is provided for general information purposes only. Consider your investment objectives, financial resources and other relevant circumstances carefully before investing. This is not an invitation or an offer to invest, nor is it financial advice or a recommendation to buy or sell any investment.
