Stocks slipped this morning as corporate earnings came back into focus. The Dow, S&P, and Nasdaq Composite all fell through noon today after closing significantly higher yesterday, where Fed Chairman Jerome Powell’s comments at an Economic Club of Washington luncheon sparked market chaos. Stocks rallied, dipped, and then rallied again as bulls were able to regain control.
But today’s a different story with all three major indexes falling. The question is whether equities will continue lower from here or rebound yet again.
Chipotle (NYSE: CMG) missed earnings estimates in its pre-market report while CVS (NYSE: CVS) and Uber (NYSE: UBER) both posted “beats.” Disney (NYSE: DIS) reports after the closing bell this evening alongside Mattel (NASDAQ: MAT), and analysts will be watching both companies for signals of consumer weakness.
The biggest story of the day, however, was the massive Alphabet (NASDAQ: GOOGL) skid. GOOGL shares plummeted, falling almost 9% after its company-wide AI chatbot test was canceled at the last minute. That, coupled with lingering “did we overdo it?” fears from bulls had sentiment finally leaning bearish.
“It’s the continued kind of yin-and-yang, if you will, with, ‘Which way are we going with the Fed?,’” asked IndexIQ CIO Sal Bruno.
“We should expect a lot of choppiness.”
JPMorgan strategist Andrew Tyler saw Powell’s remarks as a much-needed boon for bulls following several weeks of major gains.
“Yesterday’s Powell press conference was a net positive for stocks, but bears are still pointing to the comment, ‘if strong labor data persists, peak rate may be higher.’ I think bulls would say that this is not new information and that the determination to remain data dependent versus a pre-determined hiking pathway is a positive, assuming inflation data continues to fall,” Tyler wrote.
“This puts heightened importance on Tuesday’s CPI print. The Cleveland Fed is forecasting a 6.44% YoY change followed by a 6.09% print in March.”
That’s right, the next Consumer Price Index (CPI) release will arrive on Valentine’s Day, and it could potentially supercharge the rally if the market sees a weaker-than-expected print. Powell’s “data-dependent” approach means that each CPI and jobs report will only be viewed with more scrutiny than they were before, if that’s even possible.
Stocks could easily tick higher in the meantime unless Disney reports surprisingly terrible guidance tonight. There’s not much out there for bulls to be afraid of right now except another Chinese balloon.
If, however, inflation looks hot again on the 14th, bulls can kiss this rally goodbye. The market could stomach a “strong” jobs report. But a big payroll number and rebounding inflation? Forget about it, especially after Powell said yesterday how data-driven the Fed remains.
