The S&P 500 Index (SP500) on Friday. retreated 0.42% for the week which ended at 5,026.61 points, recording losses in three out of five sessions. The related SPDR S&P 500 Trust ETF (NYSEARCA:SPY) fell by 0.34% for the week.
Some market participants and analysts might say so This week’s retreat was perhaps even long overdue. Last Monday, Wall Street had published a five-week winning streak, and going back even further, they had recorded fourteen positive weeks out of their last fifteen. The main drivers of this progress were aggressive expectations of interest rate cuts by the Federal Reserve and a prolonged rally in technology stocks, particularly mega-cap ones.
The relentless rally came to a head last week when the benchmark S&P 500 (SP500) crossed and closed above the historic 5,000 point mark for the first time ever.
Then, this week, Wall Street received a reality check. In a double whammy, a warmer-than-expected consumer price index (CPI) report on Tuesday was followed by equally strong producer price index (PPI) data on Friday. The data showed that inflation may prove stickier than previously thought and that the Fed’s fight against it is far from over.
The indicators also led market participants to scale back their expectations of a 25 basis point rate cut by the Fed in March. Additionally, traders poured into bonds, pushing U.S. Treasury yields to their highest levels in a year during the week.
“The Fed sought to dampen investor optimism about potential rate cuts in the spring, stressing that more evidence is needed that improvements in price stability are durable and that a shift to accommodative monetary policy will not trigger a recovery in inflation. To that end, this week is a setback, with CPI data showing stronger-than-expected January inflation and today’s PPI showing wholesalers raising prices during the same month,” said José Torres, senior economist at Interactive Brokers (IBKR).
“Future data could also portray persistent inflation compared to this week’s as an isolated setback. Prices for services, goods and gasoline have all risen this month, while in January the services category, subject “Inflation was the only culprit that pushed the indexes up. In my view, this week’s CPI and PPI data could rule out a rate cut in June, while some policymakers have expressed renewed expectations to delay an accommodative shift.” Torres added.
While inflation has been in focus this week, earnings season has also continued to garner some attention. Some of the most notable companies that reported their results were pharmaceutical manufacturer Biogen (BIIB), soft drinks giant Coca-Cola (KO), the world’s largest hotel operator Marriott (MAR), vacation rental company Airbnb (ABNB), Kool-Aid and Jell-Kraft Heinz (KHC), networking giant Cisco (CSCO) and cryptocurrency exchange Coinbase (COIN).
Next week, Wall Street darling Nvidia (NVDA) will report results, along with retailer Walmart (WMT).
As for the weekly performance of the S&P 500 (SP500) sectors, seven closed in the green, led by Materials and Energy. Tech fell nearly 2.5% and outpaced the losers. Below is a breakdown of the performance of the sectors and their associated SPDR Select Sector ETFs from the close of February 9th to the close of February 16th:
No. 1: materials +2.36%and the Materials Select Sector SPDR ETF (XLB) +2.44%.
No. 2: Energy +2.17%and the Energy Select Sector SPDR ETF (XLE) +1.57%.
No. 3: Financials +1.41%and the Financial Select Sector SPDR ETF (XLF) +0.26%.
No. 4: Utilities +1.35%and the SPDR ETF Utilities Select Sector ETF (XLU) +1.59%.
No. 5: Health care +1.02%and the SPDR ETF Health Care Select Sector ETF (XLV) +1.12%.
No. 6: Industrials +0.85%and the Select Industrial Sector SPDR ETF (XLI) +0.92%.
No. 7: Basic necessities +0.15%and the SPDR Select Sector Consumer Staples ETF (XLP) +0.23%.
No. 8: Real estate -0.18%and the Real Estate Select Sector SPDR ETF (XLRE) -0.16%.
#9: Discretionary Consumption -0.77%and the SPDR Consumer Discretionary Select Sector ETF (XLY) -0.49%.
No. 10: Communication services -1.61%and the SPDR Fund for the selected communications services sector (XLC) -0.28%.
#11: Information Technology -2.46%and the Technology Select Sector SPDR ETF (XLK) -2.54%.
For investors looking ahead to what’s happening, check out the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.