On Tuesday, U.S. stocks experienced a modest decline, with technology shares leading the way down, while crude oil prices surged. The market’s focus has shifted to impending inflation data, a crucial factor that could influence the future direction of the U.S. Federal Reserve’s monetary policy.
All three major U.S. stock indexes edged lower during the trading session. The cloud services giant, Oracle (ORCL.N), contributed to the downbeat sentiment as it forecasted weaker-than-expected revenue for the current quarter, hinting at a broader softening of demand.
In contrast, the energy sector (.SPNY) saw a notable rise of 2.3%, primarily driven by the surging crude oil prices, which helped limit the decline in the blue-chip Dow Jones Industrial Average.
Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, likened the current market sentiment to a “late summer day,” where investors are anxiously awaiting significant developments. He commented, “Money is looking for the next horse to jump on in this race to year-end.”
At the forefront of investors’ minds is the impending release of the Consumer Price Index (CPI) report scheduled for Wednesday. This report is expected to provide further insights into the trajectory of inflation and offer clarity on the potential direction of key interest rates.
While the core CPI is anticipated to show signs of cooling inflation, the forecast suggests that rising fuel costs could result in higher headline inflation, an aspect that is unlikely to escape the attention of the Federal Reserve.
In just one week, the central bank is set to convene its two-day policy meeting, widely anticipated to conclude with a pause in interest rate adjustments.
Bill Merz, head of capital markets research at U.S. Bank Wealth Management in Minneapolis, emphasized the importance of understanding policy dynamics. He noted, “People are in a holding pattern waiting to understand policy, and policy goes back to inflation, the labor market, prices, and consumer demand. The Fed is also in wait-and-see mode; they need to see how data evolves before claiming victory.”
Merz also highlighted the unique challenge facing the Federal Reserve, stating, “(The Fed has) made good progress so far; it’s that last mile of getting (inflation) from 3% or 4% to 2%, that’s grabbing the attention of investors.”
As investors brace for the CPI report and the Federal Reserve’s forthcoming decision, the market remains in a state of cautious anticipation, with economic indicators and inflation trends shaping the path forward for U.S. monetary policy.