U.S. stocks turned lower on Tuesday as investors waited for the release of a key inflation report to find out what will happen to interest rates.
By morning trading, all three major indexes had reversed their earlier gains. The Dow Jones Industrial Average (^DJI) led the decline, dropping about 0.7%, or more than 250 points. The benchmark S&P 500 Index (^GSPC) fell by about 0.6%, and the tech-heavy Nasdaq Composite Index (^IXIC) fell by about 0.3%.
Stocks were left out ahead of Wednesday's release of the consumer price index, seen as a crucial point for markets whose next rally is set to slow after a strong first quarter.
Given the continued strength of the U.S. economy, investors are becoming increasingly less confident that the Fed will deliver its expected three interest rate cuts this year. For this reason, there has been increased attention to the CPI data for March, and any signs that inflation is starting to calm down again will be seen as an invitation to a policy change in June.
Meanwhile, the 10-year US Treasury (^TNX) yield has risen to near a five-month high as expectations for interest rate cuts fade. This is also a potential headwind for the stock, with the 5% level seen as a major concern. The benchmark yield fell about 5 basis points to about 4.4% on Tuesday.
At the same time, rising metal prices have raised concerns about feedthrough effects on inflation. Copper (HG=F), a key industrial input, rose about 0.7% early Tuesday, adding to its year-to-date gain of 10% and sparking new bull market talk. Gold (GC=F) rose above $2,380 per ounce, extending its rally to a new record.
Another trigger is the start of the first quarter earnings season, which begins in earnest on Friday with earnings announcements from companies such as Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC).
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Product check: Soaring gold and oil prices
Commodity prices are soaring as gold (GC=F) hits a new all-time high, while debate rages on whether oil prices will reach $100 a barrel.
Gold prices have risen for the past eight sessions despite recently revised expectations that interest rates would be cut less this year than originally expected.
Bank of America said in a note released Monday that the price of gold could rise to $3,000 an ounce by 2025. Prices are currently trading above $2,380 per ounce.
Meanwhile, energy prices, which have been the biggest contributor to headline CPI numbers over the past few months, remain the main risk to inflation.
WTI crude oil (CL=F) is currently trading around $86 per barrel, while Brent crude oil prices (BZ=F) are above $90 per barrel.
“Brent rose to $91 per barrel as the market priced in the outlook for strong demand and downside geopolitical risks to oil supply,” Goldman Sachs said in a new research note released on Sunday. “This is because these factors have combined to boost positioning and valuations.”
Still, the team doesn't see prices rising to $100 this year, mainly due to solid demand expectations and no further hit to geopolitical supply.
(Source: Goldman Sachs) -
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Teens are cutting back on spending, but not everywhere
Teens are tightening their spending belt, according to Piper Sandler's latest Survey study released this morning.
According to the spring survey, “self-reported” spending among teens fell 6% from a year earlier to $2,263, and was only up 1% from the fall.
The biggest category winner is cosmetics.
Spending on beauty products has reached its highest level since spring 2018, which is interesting in that ULTA CEO David Kimbell last week warned of a slowdown in the industry (his stock plummeted). Research shows that Elf Beauty (ELF) gained the most market share compared to its competitors.
Teenagers control their spending. (Piper Sandler) -
PC recovery continues
Today, pay attention to the stock prices of PC manufacturers Dell (DELL) and HP Inc. (HP).
PC industry company Canalys said Tuesday that total desktop and notebook shipments rose 3.2% annually to 57.2 million units in the first quarter. The research institute says this is a sign of increased demand ahead of catalysts later this year, such as the arrival of AI PCs and a Windows 11 refresh.
“The growth in Q1 2024 is a good sign that the PC market will continue to perform well throughout the year,” said Ishan Dutt, Principal Analyst at Canalys. “Demand continues to be constrained by macroeconomic conditions in certain markets, as vendors and channels engage in the final stages of inventory adjustments. However, strength in refresh opportunities, particularly from corporate customers, is beginning to surface. The market will continue to grow stronger in the coming quarters as consumers prioritize upgrades in preparation for the mass migration to Windows 11.”
PC recovery is continuing. (Canaris)
