Investing.com — The S&P 500 closed higher after cutting losses Monday as a jump in cyclical stocks including energy helped offset a rotation out of growth stocks including tech amid growing worries about a Federal Reserve pause just days ahead of key inflation data.
At 4:00 p.m. ET (21:00 GMT), Dow Jones Industrial Average 355 points, or 0.9%, while S&P 500 added 0.2%, and NASDAQ Composite slipped 0.4%.
Energy, materials benefit from tech rotation
Cyclical stocks including materials and energy sparked a broader market recovery, as investors rotated out of growth stocks including tech amid concerns about higher for longer interest rates.
Energy stocks including Valero Energy Corporation (NYSE:VLO), Baker Hughes Co (NASDAQ:BKR), and Schlumberger NV (NYSE:SLB) were up more than 3%, underpinned by rising oil prices on bets for supply disruptions after the U.S. imposed sanctions on Russian oil exports.
A slew of semiconductor stocks including NVIDIA Corporation (NASDAQ:NVDA) were in the red, pushing the broader tech sector lower after the White House unveiled new rule on exports of AI chips to adversaries including China.
The broader tech sector was also held back by concerns about a prolonged Fed pause, pushing Treasury yields higher, with some on Wall Street betting on just one rate cut this year following concerns about sticker inflation.
Inflation data loom large as rate-cut bets diminish
With a potential revival of inflation one of the key risks facing stock markets, Wednesday’s consumer price index will be closely watched.
Economists are expecting the December CPI to show a 2.9% year-over-year increase, which would be faster than the preceding month’s pace of 2.7%. On a month-on-month basis, the figure is tipped to match November’s reading of 0.3%.
The upcoming inflation data are expected at a time when many are bracing for fewer Fed cuts following the much better than expected nonfarm payrolls report for December released last week.
“According to fed funds futures, the market is looking for roughly just one cut through the end of the year, down from about twice that before Friday’s employment report, with longer-run yields pushing higher as well,” Stifel said in a recent note.
While the Fed was confident that inflation had moderated enough to start cutting interest rates in September, the pace of annual price gains has remained above the Fed’s 2% target. The Fed now projects inflation will rise 2.5% in 2025.
Trump is set to take office next week.
Banks to kick off earnings season later this week; Macy’s drops on soft guidance
Investors were now looking to the fourth-quarter earnings season, which is set to begin in earnest this week with prints from several major Wall Street banks.
JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and Bank of New York Mellon (NYSE:BK) are due to report on Wednesday.
Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) will report on Thursday, as will major insurer Unitedhealth Group (NYSE:UNH).
Ahead of this, Macy’s (NYSE:M) stock fell 8% after the retailer said it expects fourth-quarter net sales to be slightly below the low-end of the previously issued range.
Abercrombie & Fitch (NYSE:ANF) stock slumped nearly 16% despite the retailer lifting its annual net sales growth target for the current quarter, with the increase not enough to reassure investors the company could keep up the recent growth rate.
Moderna (NASDAQ:MRNA) stock plummeted 17% after the drugmaker cut its 2025 sales forecast by $1 billion on Monday, hurt by a slow launch of its respiratory syncytial virus shot and weak demand for COVID-19 vaccines.
This week’s earnings are also set to define the next leg of movement for Wall Street, as a mix of rate jitters and profit-taking at lofty valuations also battered U.S. stocks over the past month.
(Peter Nurse Ambar Warrick contributed to this article.)
