1. Moving the market

The major indexes received a boost early this morning from a better-than-expected Producer Price Index (PPI) report. Despite the tech sector suffering most of the losses yesterday and last week, it managed to advance today, although it dropped below its unchanged line by the close.

The PPI, which represents wholesale inflation, increased by 0.2% in December, compared to estimates of 0.4%. Year-over-year, the PPI surged from 3.0% to 3.3%. The Core PPI, which excludes food and energy, remained unchanged.

Tomorrow’s Consumer Price Index (CPI) reading is expected to have a more significant market impact. If the CPI comes in hotter than anticipated, the Federal Reserve may slow down any interest rate cuts, which typically does not bode well for stocks. Despite current conditions, there is a 78% chance that the Fed will maintain its current rate policy when they meet later this month.

Today was another volatile day in the markets, with indexes fluctuating above and below their respective unchanged lines. Small Caps emerged as the top performers, while the Nasdaq lagged.

The S&P 500 hovered around its 100-day moving average, and Mega Caps dropped for the sixth consecutive day. Bond yields were mixed, with the 10-year yield eking out a small gain, while the 30-year yield crossed the 5% level to the upside for the first time since November 2023.

The dollar tumbled, which helped gold to achieve a modest advance of +0.44%. Bitcoin, after breaking below $90k yesterday, found some footing and surged towards $97k, while crude oil prices dipped below $78.

We witnessed wild swings throughout the session, with bulls and bears engaged in a tug-of-war. Will tomorrow’s crucial CPI report declare a winner?

1. Moving the market

Tech shares, which were the stars of last year’s bull run, faced significant losses this morning as last week’s sell-off continued. The Nasdaq led the decline, while the Dow remained in positive territory. However, a slow and steady climb helped the S&P 500 close in the green.

Some of the most popular tech leaders in the bull market, such as Nvidia and Palantir, dropped more than 2% each after falling 6% and 11% last week. Micron and Tesla also traded lower.

Surging bond yields have been the catalyst for the decline in growth-oriented stocks, with the 10-year yield rising steadily since the Fed adopted a dovish policy stance. In other words, the markets are not convinced by the Fed’s approach.

If the 10-year yield reaches the 5% mark, equities will face a significant challenge in maintaining upward momentum. This could signal the end of the current bull market cycle unless rates stabilize.

This situation could also be a short-term correction, with traders hoping that the upcoming earnings season will provide a much-needed boost to the struggling markets. The banking sector will kick off earnings reports this Wednesday.

Tomorrow’s Producer Price Index (PPI) and Wednesday’s Consumer Price Index (CPI) will also impact the markets, potentially stabilizing them or increasing bearish momentum.

Money market funds have seen a $165 billion inflow over the past three weeks, the largest since March 2023, indicating a lack of support for risky assets. Banks have been the victims of this move, experiencing a significant drawdown in deposits.

The mega-cap sector started the session with a plunge but managed to rally off their lows. The biggest loser of the day was Edison, which faced multiple lawsuits due to the LA fires.

Bond yields continued their upward trajectory, with the dollar maintaining its strength, causing gold to fall below the $2,670 level. Bitcoin temporarily dropped below $90k but rebounded strongly towards $94k.

Crude oil extended its recent gains and settled above $78. Does this mean that prices at the pump will follow?

1. Moving the market

The markets continued to face challenges following significant declines in big tech stocks during the previous session. Traders are primarily concerned about the trajectory of interest rate cuts, which are crucial for maintaining the bullish cycle.

Adding to the negative sentiment were reports indicating that private sector job creation in December fell more than expected, while wages grew at the slowest pace since July 2021. To me, these data points suggest a struggling consumer, especially when considering the record levels of credit card debt.

This morning, rising bond yields, driven by concerns that inflation is not under control, were also a worry. However, an early spike in the 10-year yield to 4.73% quickly reversed.

Ultimately, dip buyers stepped in, lifting the Dow and S&P 500 out of the red and into a moderately positive close. The Nasdaq nearly broke even, while Small Caps lagged.

Crude oil suffered its largest drop in a month after rising in six of the last seven days. The dollar ended the session higher, but this did not negatively impact gold, which gained 0.54%.

Bitcoin continued its downward trend following yesterday’s stumble but found support at the $93,000 level.

With the markets closed tomorrow, I will return on Friday with the week-ending commentary.