Dow snaps three-day winning streak as investors await new U.S. inflation data

What happended

The Dow fell on Monday as the 2-year Treasury yield ended at its highest level in three months, and as investors look past the recent earnings results from Big Tech companies, José Torres, senior economist at Interactive Brokers, said in a call.

Stocks rallied last week, with Nvidia Corp.
NVDA,
-1.32%
surging in the wake of its stronger-than-expected quarterly results.

“We are encouraged by the stock-market rally so far this year, which is being driven in large part by better-than-expected earnings and excitement over artificial intelligence, which is helping to overshadow the market’s fears that the [Federal Reserve’s] rate cuts may be delayed due to persistent inflation,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management in Punta Gorda, Fla., which has $1 billion in assets under management.

Landsberg said he expects 2024 to be “the year of ‘show me the money’” when it comes to AI.

“Companies that can produce earnings from AI will see their stocks continue higher, and the companies that are unable to produce earnings from AI will give back much of their 2023 gains,” he said. “Much of the AI hype will prove to be overblown for most companies, but for the true winners, the hype will look conservative.”

This week will bring several important data points, including the first revision to fourth-quarter U.S. gross domestic product on Wednesday and January’s reading of the personal-consumption expenditures (PCE) price index, the Federal Reserve’s favored inflation metric, on Thursday.

See: Should stock-market investors care more about Nvidia or the Fed? Inflation data will provide a test.

“Our economists believe the [month-over-month] core print will be at 0.36% vs. 0.17% last time,” said a team of strategists at Deutsche Bank led by Jim Reid. “This would make it the highest since last January. The fact that last January was 0.51% means that rolling out base effects should help the [year-over-year] rate edge down a tenth to 2.8%. However it’s the monthly print that will be all-important,” the strategists said.

If the PCE data surprises to the cooler side, investors may see a recalibration of the Fed’s rate-cut expectations, according to Quincy Krosby, chief global strategist at LPL Financial. In that case, traders may again start pricing in a potential rate cut in May, Krosby said in a call.

However, if the reading comes in hotter than expected, it may confirm that the “last mile” for the Fed to bring inflation down to its 2% goal is particularly challenging, she noted.

Monday’s new-home sales data showed that sales ticked up in January. Appearances by several Fed speakers will be sprinkled throughout the week, as well.

Companies in focus

• The Federal Trade Commission on Monday sued to block the merger of grocery-store chains Kroger Co.
  KR,
  +0.33%
  and Albertsons Cos. Inc.
  ACI,
  -1.44%,
  saying the deal would stifle competition, raise grocery prices and harm workers and product quality. Kroger’s shares declined 2%, while Albertsons’ stock rose 0.6%.

• Shares of Domino’s Pizza Inc.
  DPZ,
  +0.02%
  ended 5.9% higher after the pizza chain topped profit expectations for its latest quarter, boosted by strength in both delivery and carryout sales.

• Berkshire Hathaway Inc.
  BRK.A,
  +0.61%

  BRK.B,
  +0.79%
  on Saturday reported that operating earnings after taxes rose 28%, to $8.5 billion in the fourth quarter of 2023, on strength in its insurance business and higher investment income. Billionaire investor Warren Buffett, Berkshire’s chair and CEO, also released his annual letter to shareholders. Berkshire shares were 1.9% lower Monday.

Read: Buffett praises ‘architect’ Munger but doesn’t reveal new investment in Berkshire’s 2024 shareholder letter

Barbara Kollmeyer contributed.