The S&P 500 Index (SP500) on Friday. retreated 0.13% for the week which ended at 5,116.95 points, recording losses in four out of five sessions. The related SPDR S&P 500 Trust ETF (NYSEARCA:SPY) fell by 0.42% for the week.
The benchmark index, however, posted its second consecutive weekly loss the decline continued to be mostly marginal. Wall Street got a bit of a brush with reality this week in the form of warmer-than-expected consumer and manufacturing inflation data, along with a retail sales reading that pointed to moderation in consumer spending.
Market participants reacted to the data by scaling back their interest rate cut expectations. The Federal Reserve probably won’t be too keen on the sticky nature of inflation, and the focus is now squarely on the central bank’s second monetary policy decision of the year next Wednesday along with its updated dot plot of rates and economic projections.
On Tuesday, the headline consumer price index (CPI) stood at 0.4% M/M for February, the biggest increase since September last year. Core CPI also stood at +0.4%, higher than the estimated figure of +0.3%. However, traders took the report in stride and it ultimately did not have much effect on rate cut expectations, with the benchmark index posting gains of more than 1% on its only positive day of the week.
But Thursday’s Producer Price Index (PPI) report, along with retail sales data, proved too much to ignore. The headline PPI rose +0.6% in February, significantly higher than the consensus of +0.3%. The core PPI stood at +0.3%, against an estimate of +0.2%. Meanwhile, retail sales rose 0.6% M/M in February to $700.7 billion, but the increase was lower than the expected increase of +0.8%, suggesting that perhaps consumer it wasn’t as healthy as expected.
The spotlight is now on Fed Chair Jerome Powell and the central bank’s updated dot plot that will be released alongside its monetary policy decision next week. Markets widely expect the Fed to keep rates stable, but the question now is: How many rate cuts could happen this year? At the start of 2024, investors had predicted seven rate cuts, but now only three remain.
“At next week’s meeting we expect the FOMC to leave rates unchanged and make few changes in the post-meeting statement. In the dot plot we believe there is a better chance that the midpoint for this year will move towards two 25 basis point cuts . from YE24 compared to three such cuts in the December dot plot,” said JPMorgan’s Michael Feroli.
“As for our request, we are comfortable looking for a first cut in June. It has been less than six weeks since March was discounted. Just as we thought it was an overreaction to the weak November-December inflation data, We similarly view the recent comments as an overreaction to the stronger January-February data,” Feroli added.
While economic data and monetary policy have dominated most of the headlines this week, there have also been a few notable companies reporting earnings. Oracle (ORCL) shares rose as the cloud software giant’s quarterly results and big cloud contract signings spurred by demand for artificial intelligence impressed Wall Street. By contrast, discount chain Dollar Tree (DLTR) posted a disappointing quarterly performance, while the boss of Dollar General (DG) suggested consumers are still burdened by inflation.
Turning to the weekly performance of the S&P 500 (SP500) sectors, six closed in the red, with real estate down nearly 3% and leading the losers. Energy led the gains with a gain of nearly 4%. The tech-heavy sector saw a marginal decline. Below is a breakdown of the performance of the sectors and their associated SPDR Select Sector ETFs from the close of March 8th to the close of March 15th:
No. 1: Energy +3.74%and the Energy Select Sector SPDR ETF (XLE) +3.84%.
No. 2: Materials +1.51%and the Materials Select Sector SPDR ETF (XLB) +1.62%.
No. 3: Communication services +0.46%and the SPDR Fund for the selected communications services sector (XLC) -0.38%.
No. 4: Basic necessities +0.45%and the SPDR Select Sector Consumer Staples ETF (XLP) +0.49%.
No. 5: Financials +0.44%and the Financial Select Sector SPDR ETF (XLF) +0.49%.
No. 6: Industrials -0.18%and the Select Industrial Sector SPDR ETF (XLI) -0.21%.
No. 7: Information technology -0.37%and the Technology Select Sector SPDR ETF (XLK) -0.84%.
No. 8: Utilities -0.53%and the SPDR ETF Utilities Select Sector ETF (XLU) -0.45%.
No. 9: Healthcare -0.76%and the SPDR ETF Health Care Select Sector ETF (XLV) -0.73%.
#10: Consumer Discretionary -1.19%and the SPDR Consumer Discretionary Select Sector ETF (XLY) -1.25%.
#11: Real estate -2.90%and the Real Estate Select Sector SPDR ETF (XLRE) -2.81%.
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.