Day Traders Diary

2/13/23

The major averages surged on Monday as traders looked ahead to Tuesday's key inflation report, regaining their footing after the S&P 500 and Nasdaq Composite suffered their worst weekly declines in nearly two months. The Dow Jones Industrial Average closed 376 points higher, or 1.11%, to end the session at 34,245, its best day in February. The S&P 500 climbed 1.14% to close at 4,137.29, and the Nasdaq Composite advanced 1.48% to 11,891.79.

Microsoft led the Dow's gains, rising 3.1%. Nike and Salesforce each gained 2.4%, boosting the index. Intel added 2.7%. Investors will get more inflation data this week. On Tuesday, January's consumer price index report will be released, showing if price increases have slowed amid the central bank's rate hikes.

So far, investors seem to be betting on a solid CPI print on Tuesday that shows inflation is cooling and that a pause or pivot in Fed rate hikes may be near.

"The Goldilocks-like mix of industrial production recovery and falling inflation we expect this quarter has helped boost risk appetite and equities," said Ray Farris of Credit Suisse in a Monday note.

This boost could dissipate by the summer, however, especially as the lagging impact of central bank rate increases tightens global financial conditions.

On the flip side, a miss on the Tuesday report would likely signal that the Fed will hike interest rates even more, putting downward pressure on equities.

"The market is starting to sense that the very comforting disinflation story is more complex than we'd like it to be," Mohamed El-Erian, chief economic advisor at Allianz, said on CNBC's "Squawk Box" on Monday.

The final leg of earnings season also continues this week, with Coca-Cola, Marriott, Cisco, Marathon

 and Paramount. So far, companies have reported worse-than-expected results, making this year the worst earnings season in more than two decades, excluding recessions, according to Credit Suisse.

All three major indexes are coming off a losing week. The Dow last week slipped 0.17%. Meanwhile, the S&P 500 fell 1.11%, and the tech-heavy Nasdaq slid 2.41%, marking their biggest weekly losses since December.

The moves came after Federal Reserve Chairman Jerome Powell said that there is still a long way to go in the fight against inflation. He also noted that interest rates could rise more than markets anticipate if inflation numbers do not abate, reversing some of the prior optimism that rate hikes would soon ease.