Day Traders Diary

2/14/23

The major averages closed mixed with the Dow reversing earlier gains, after the January consumer price index report showed that inflation grew at higher-than-expected 6.4% annual rate. The Dow Jones Industrial Average slipped 156 points, or 0.45%, to close at 34,089. The S&P 500 fell a point to 4,136. The Nasdaq Composite recouped losses to close up 68 points or 0.57% to 11,960, boosted by technology stocks including Tesla and Nvidia, which rose 7.51% and 5.43%, respectively.

Treasury yields ticked higher, with the yield on the 6-month U.S. Treasury on track to close above 5% for the first time since July 2007.

A stubbornly high inflation reading sent stocks sliding. The consumer price index rose 0.5% for the month, which translated to an annual gain of 6.4%. That was slightly higher than economist estimates of the basket of goods and services rising 0.4% on the month and 6.2% on the year, according to a survey by Dow Jones. In addition, the December report was revised to show a slight gain instead of a decline.

Before the number was released, JPMorgan's trading desk predicted that an annual increase of 6.4% to 6.5% would trigger an S&P 500 loss of about 1.5% on Tuesday. It was better than worst fears of a greater than 6.5% annual increase, an acceleration in inflation that would have triggered an S&P 500 decline of 2.5%, JPMorgan predicted.

The report was largely better than feared, but at the same time unlikely to cause the Fed to back off from its tightening campaign.

"While there were no major surprises in today's CPI reading, it is a reminder that while inflation has peaked it could be a while before we see it moderate to normal levels," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment office.

"The question remains if inflation will be able to fall to the Fed's target levels with the labor market as tight as it currently is," he added. "That could be the recipe for a soft landing, but it remains to be seen when the Fed will shift away from rate hikes and if the labor market will lose its resiliency."

Beyond the CPI, investors will also be watching for earnings for insights into the health of the consumer. Kraft Heinz, Boston Beer and DoorDash are all scheduled to report this week.