Wall Street, after a remarkable week of gains, showed signs of potential minor losses early on Monday, as the focus shifted towards upcoming corporate earnings reports and another inflation update from the U.S. government. Before the opening bell, futures for the S&P 500 remained flat, while futures for the Dow Jones Industrial Average dipped slightly by less than 0.1%.
This week holds significance as the Labor Department is set to release an important update on consumer inflation. While the U.S. price data might not significantly impact monetary policy, analysts like Stephen Innes of SPI Asset Management anticipate a potential decrease in inflation at the beginning of the year. This could reinforce expectations that the Federal Reserve might consider interest rate cuts in the coming months.
Since late October, Wall Street has experienced a bullish trend, fueled by optimism that a slowdown in inflation will prompt the Federal Reserve to ease pressure by lowering interest rates. Moreover, corporate profits within the S&P 500 have generally surpassed expectations this reporting season, boosting optimism among investors. However, some contrarians caution that this optimism may have driven stock prices to excessive levels.
Bank of America’s contrarian measure, which gauges market sentiment based on fear and greed, is currently leaning more towards “sell” than “buy,” albeit not at decisive levels. This measure suggested buying in October when fear was notably high.
In corporate news, Diamondback Energy initiated the week with an announcement of its acquisition of rival Endeavor Energy Resources in a cash-and-stock deal valued at approximately $26 billion. This move aims to create a drilling powerhouse in the Southwestern United States.
Later in the week, investors await financial reports from companies such as Shopify, DoorDash, and WK Kellogg.
In European markets, Germany’s DAX and France’s CAC 40 saw gains of 0.4%, while Britain’s FTSE 100 experienced a 0.2% decline. In Asian trading, Australia’s S&P/ASX 200 and India’s Sensex faced losses, while Thailand’s SET and Jakarta’s benchmark index recorded slight gains.
With mainland Chinese markets closed for the Lunar New Year holiday and Tokyo’s markets also shut for a one-day holiday, there was a lack of significant market-moving news in the region.
In commodity markets, U.S. benchmark crude oil experienced a decline to $76.17 per barrel, while Brent crude, the international standard, dropped to $81.41 per barrel. The U.S. dollar also saw a slight decrease against the Japanese yen and the euro.
Last Friday, the S&P 500 closed above 5,000 for the first time, marking its 10th record in less than a month. The Nasdaq composite surged to come within 0.4% of its all-time high set in 2021, while the Dow Jones Industrial Average, despite setting a record the previous day, experienced a slight decline.