Wall Street traders bracing for key inflation data waded through mixed economic figures and remarks from Federal Reserve speakers for clues on the interest-rate outlook.

Equities saw small losses after a report showed the U.S. economy expanded at a slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. The data — seen as “uneventful” by many investors — came just 24 hours before the release of the Fed’s favored inflation gauge.

Following a jump in both the consumer and the producer price indexes, Thursday’s core personal consumption expenditures gauge will likely highlight the bumpy path the central bank faces in achieving its 2 per cent target. The PCE is seen validating recent commentary from officials showing no rush to ease monetary policy.

“The recent data is ‘noise’ and should be ignored outside of its impact for very short-term market movements,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “We are more interested in the PCE data.”

The S&P 500 fell to around 5,070. Nvidia Corp. extended its decline from a record. Apple Inc. dropped, but remained above its US$180 technical support. Tesla Inc. rose. UnitedHealth Group Inc. sank on news reports that the U.S. Department of Justice initiated an antitrust probe. Bitcoin pushed past $60,000 in a rally fueled mostly by the launch of U.S. exchange-traded funds holding the token this year. Treasury 10-year yields slid four basis points to 4.26 per cent.

Three Fed officials said the pace of rate cuts will depend on incoming economic data. 

Boston Fed President Susan Collins and New York’s John Williams said the first cut will likely be appropriate “later this year,” while Atlanta’s Raphael Bostic said he’s currently penciling in a cut for sometime this summer.

Treasuries are on track for a second consecutive monthly loss after hotter-than-expected inflation figures curbed Fed wagers.

Traders are currently pricing around 80 basis points of easing by year-end — almost in line with what officials in December indicated as the likeliest outcome. That would equate to three cuts in 2024 — as the Fed moves have historically been increments of 25 basis points. To put things in perspective, swaps were projecting almost 150 basis points of cuts this year at the start of February.

To Matt Maley at Miller Tabak, given that long-term Treasury yields have shown significant signs that they have seen a change in trend to the upside this year, Thursday’s inflation data could still shake things up before the week is over.

“If tomorrow’s inflation data pushes yields higher, it just might cause stock investors to finally react to this year’s change in trend in bond yields,” Maley noted.

Bolstered by bets on lower rates and the artificial-intelligence euphoria, equities have posted successive records since the start of 2024 and are now heading toward their fourth consecutive monthly advance. Such optimism has spurred warnings about either a consolidation or a pullback at this stage.

“We believe there are valuation concerns throughout the markets,” said David Bahnsen, chief investment officer at the Bahnsen Group. “Markets are pricing in unrealistic earnings growth at this point. It is just hard for us to rationalize entering the indexes at these levels.”

Bahnsen also notes that investors should be “prudent and selective” — avoiding a strategy that simply buys the stocks that go up.

“We expect market breadth to increase,” he added. “The only question is whether or not it increases from the top 5-10 names underperforming or the currently underperforming components of the market increasing — or some combination thereof.”

U.S. stocks have reached a significant inflection point — poised to either “top out or broaden out,” according to Craig Johnson at Piper Sandler. Technical evidence suggests the next 10 per cent move in the equity market is likely lower than higher, he added.

“We continue to observe overall poor market breadth,” Johnson noted. “A broadening out will favor the financial and healthcare sectors as they are among the largest weightings in the Russell 2000. A topping out would likely result from profit-taking in the ‘Magnificent Seven’ stocks.”

While valuations are higher for the “Magnificent Seven” megacaps, they are warranted for the group delivering earnings growth that’s “significantly better” than the remaining companies in the S&P 500, according to To Marc Dizard at PNC.

The cohort — which includes giants Nvidia Corp., Meta Platforms Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc., Apple Inc. and Tesla Inc. — saw its average earnings per share rise 55 per cent in the fourth quarter compared to a year ago, according to data compiled by Bloomberg.

“Right now, the Magnificent Seven names aren’t an area I would over concentrate, but I wouldn’t want to neglect them in a portfolio either,” Dizard said. “So certainly have, and maintain, an exposure to these names – but keep it in context of a more broadly diversified portfolio.”

Goldman Sachs Group Inc.’s Scott Rubner — who recently dubbed Nvidia “the most important stock on planet earth” ahead of its blockbuster earnings — says it has proved impossible to call the peak in this euphoric U.S. stock market.

Retail traders have been lured into this rally just as a Goldilocks scenario — where the economy is running neither too hot nor too cold — has been playing out, prompting analysts quickly to upgrade their year-end targets, Rubner wrote. March is now a “fuller house” and the rally is “tired,” however there is no catalyst for a potential selloff, he said.

Corporate Highlights:

• Apple Inc. shareholders rejected a labor-backed request for an artificial intelligence transparency report, which would have delved into whether the company is using the technology ethically.
• Microsoft Corp. said it’s investigating reports that its Copilot chatbot is generating responses that users have called bizarre, disturbing and, in some cases, harmful.
• Nvidia Corp. insiders stepped up stock sales after the chipmaker’s blowout earnings report last week sent shares soaring to another record.
• Coinbase Global Inc., the biggest U.S. cryptocurrency exchange, experienced a spate of outages Wednesday on its retail platform.
• U.S. regulators issued an ultimatum to Boeing Co. in the wake of a near-catastrophic accident last month, giving the U.S. plane manufacturer 90 days to devise a plan to fix what it called “systemic” quality-control issues.
• Walt Disney Co. and billionaire Mukesh Ambani’s conglomerate have signed a binding pact to merge their media operations in India, creating a sector behemoth valued at $8.5 billion in one of the world’s fastest-growing entertainment markets.
• Bayer AG’s Monsanto unit persuaded a California judge to slash by more than 90 per cent a $332 million jury award to a former land surveyor who blamed his cancer on the company’s Roundup weedkiller.

Key Events This Week:

• Germany CPI, unemployment, Thursday
• U.S. consumer income, PCE deflator, initial jobless claims, Thursday
• Fed’s Austan Goolsbee, Raphael Bostic and Loretta Mester speak, Thursday
• China official PMI, Caixin manufacturing PMI, Friday
• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Friday
• BOE chief economist Huw Pill speaks, Friday
• U.S. construction spending, ISM Manufacturing, University of Michigan consumer sentiment, Friday
• Fed’s Raphael Bostic and Mary Daly speak, 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 0.5 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.1 per cent
• The euro was little changed at $1.0838
• The British pound fell 0.2 per cent to $1.2660
• The Japanese yen fell 0.1 per cent to 150.69 per dollar

Cryptocurrencies

• Bitcoin rose 6.4 per cent to $60,389.51
• Ether rose 1.5 per cent to $3,298.7

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.26 per cent
• Germany’s 10-year yield was little changed at 2.46 per cent
• Britain’s 10-year yield declined one basis point to 4.18 per cent

Commodities

• West Texas Intermediate crude fell 0.6 per cent to $78.43 a barrel
• Spot gold rose 0.2 per cent to $2,033.82 an ounce