Stocks pushed away from their all-time highs amid a slide in a handful of big techs, with traders awaiting readings on inflation and retail sales for clues on the Federal Reserve’s next steps.

Equities struggled to gain traction after a rally that has defied every doomsday scenario on Wall Street. Despite the pause in gains on Wednesday, the S&P 500 remains in its longest stretch since 2018 without a decline of at least two per cent, according to data compiled by Bloomberg.

The current set-up reflects the drivers that have powered stocks higher this year: solid growth, prospects for Fed rate cuts and artificial-intelligence enthusiasm, according to Tom Essaye, founder of the Sevens Report. “While the fundamentals are positive, they still don’t justify current valuations — making the market vulnerable to a negative surprise.”

The S&P 500 dropped to around 5,165, while the Nasdaq 100 underperformed. Tesla Inc. led losses in megacaps after an analyst downgrade. Treasuries stabilized after an auction of 30-year bonds drew strong demand, in marked contrast to Tuesday’s sale of 10-year notes. Bitcoin hit US$73,000.

Skepticism grew in the face of a sharp rally in U.S. stocks, with the S&P 500 gaining in 16 of the past 19 weeks.

“If the S&P is going to have a strong second half of 2024, corporate earnings growth will need to accelerate,” said Nicholas Colas at DataTrek Research.

Earnings for the S&P 500 grew 7.4 per cent in the fourth quarter from the same time a year ago. Excluding the Magnificent Seven group of technology giants, profits in the index posted a 1.7 per cent contraction, data compiled by Bloomberg Intelligence show.

Colas at DataTrek remarks that while the Nasdaq Composite rally feels like it is slowing, history shows we can still expect reasonably good returns going forward.

The gauge is up over 40 per cent in the last 12 months, more than one standard deviation above the long-run mean of 36 per cent, he noted. A look at index back to 1972 shows similar rallies after prior outsized drawdowns. As long as the economy grows, the Nasdaq continues to generate positive 12-month returns after a return of over 36 per cent, he added.

The trading desk at JPMorgan Chase & Co. expects resurfacing goods inflation will make Fed officials less willing to cut interest rates this year — but that still doesn’t dent its bullish view on U.S. equities.

A belated pullback of roughly 5 per cent is possible from “momentum unwind risk,” the team led by Andrew Tyler said Wednesday in note to clients. However, near-term artificial intelligence catalysts may prevent a material down move.

Traders will get another economic check on Thursday.

Following a hot reading consumer inflation, the producer price index likely rose amid a rebound in energy prices, according to Estelle Ou at Bloomberg Economics. More importantly, components that enter the Fed’s preferred inflation gauge — the core PCE deflator — likely sustained some growth momentum from January, posing upside risks to our current core PCE estimates, she noted.

This will be the final inflation report before next week’s Fed decision on rates. With policymakers expected to hold interest rates steady for a fifth straight meeting, economists will be looking for clues as to when the central bank will start lowering borrowing costs.

“We think yields could drift higher in the lead up to next Wednesday’s FOMC decision, especially if PPI surprises to the upside tomorrow,” said Will Compernolle at FHN Financial. “If there really is a collective shrug from market participants regarding yesterday’s hot CPI, the next potential catalyst for rates to set a new anchor will be next week’s dot plot and the press conference.”

To Jose Torres at Interactive Brokers, Tuesday’s inflation results have increased the significance of the Fed’s release of its Summary of Economic Projections, or dot plot, next Wednesday. Investors are currently anticipating that the central bank will lower rates in June and make an additional two cuts by year-end.

“The Fed’s dot plot will provide insight into how realistic these expectations are with some members of the Fed implying that one or two cuts this year may be sufficient, rather than the three the market is pricing in,” Torres added.

Corporate highlights:

• The Pentagon pulled out of a plan to spend as much as $2.5 billion on a chip grant to Intel Corp., people familiar with the situation said, putting the onus on another federal agency — the Commerce Department — to make up for the shortfall.
• Dollar Tree Inc. plans to shutter about 1,000 stores in an effort to improve profitability as the discount retailer battles a spate of litigation and other headwinds.
• Eli Lilly & Co. is teaming up with Amazon.com Inc. to expand its nascent business of selling weight-loss drugs directly to patients.
• Adidas AG is sticking with its underwhelming earnings forecast for this year as it works through high inventories of unsold sneakers and apparel in North America, disappointing investors anticipating an improved outlook.
• BP Plc and the United Arab Emirates’ state oil firm suspended a $2 billion bid to buy a major stake in Israel’s NewMed Energy as the war in Gaza upends politics across the region.

Key events this week:

• U.S. PPI, retail sales, initial jobless claims, business inventories, Thursday
• China property prices, Friday
• Japan’s largest union federation announces results of annual wage negotiations, just ahead of Bank of Japan policy meeting, Friday
• Bank of England issues inflation survey, Friday
• U.S. industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.8 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.1 per cent
• The euro rose 0.2 per cent to $1.0948
• The British pound was little changed at $1.2797
• The Japanese yen fell 0.1 per cent to 147.83 per dollar

Cryptocurrencies

• Bitcoin rose 3.3 per cent to $73,381.38
• Ether rose 1.3 per cent to $4,003.15

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.19 per cent
• Germany’s 10-year yield advanced four basis points to 2.37 per cent
• Britain’s 10-year yield advanced eight basis points to 4.02 per cent

Commodities

• West Texas Intermediate crude rose 2.8 per cent to $79.73 a barrel
• Spot gold rose 0.7 per cent to $2,173.03 an ounce

This story was produced with the assistance of Bloomberg Automation.