Out of Favor. Stocks seemingly got what they wanted in the form of strong Nvidia earnings. Then they proceeded to fall anyway.

The S&P 500 fell 0.5%. Nasdaq Composite ended down 1.2%. The Dow Jones Industrial Average managed to claw its way into positive territory, closing up 17 points, or 0.03%.

Tech’s underperformance was the big story of the day with Nvidia continuing to be a drag despite its solid earnings beat yesterday. The tech stock ended the day down 5.5%.

“Nvidia shares are lower today as investors question the sustainability of elevated capital spending for data-center and AI-infrastructure buildouts, in our view,” writes Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones.

Software, meanwhile, was a standout, posting its third straight day of gains.

Of the 90% of S&P companies that have reported, 75% have beaten estimates. With valuations elevated relative to history, Kourkafas noted continued earnings growth will be essential for further stock‑market upside.

The Hot Stock: Paramount Skydance +10.0%
The Biggest Loser: Universal Health Services -11.4%

Best Sector: Financials +1.3%
Worst Sector: Information Technology -1.8%

The latest measure of wholesale inflation is due out on Friday and economists are expecting to see that solid pressure remained in the pipeline last month. That could signal that the Federal Reserve’s preferred inflation gauge will remain sticky, stalling momentum for further interest rate cuts.  

The Bureau of Labor Statistics is set to publish the producer price index for total final demand on Friday at 8:30 a.m. ET. The release of the report was delayed due to the government shutdowns. 

Economists surveyed by FactSet expect to see that wholesale inflation rose 0.3% in January. That would be about two-tenths of a percentage point less than logged in December but still a relatively firm print. The annual rate is expected to be 2.6%, a pullback from December’s 3% increase year over year. 

Core PPI, which excludes prices for food, energy, and trade services, is also expected to rise 0.3%, compared with 0.4% month over month in December. That’s expected to translate into annual growth of 3% in January, according to the Bloomberg consensus estimate, a cooldown from the 3.5% year-over-year rate in December.

The risk for a firmer-than-expected print, however, is fairly high, writes Mike Reid, head of U.S. economic research at Royal Bank of Canada. He’s expecting to see another “reasonably hot PPI print” on Friday, with both headline and core price growth rising 0.5% month over month in January. That would translate to year-over-year prints up to 2.8% for overall PPI and 3.2% for core. 

If January is hotter than expected, that could keep PCE inflation firm in the coming months. The Bureau of Economic Analysis is expected to release that data on March 13, ahead of the Fed’s March 17-18 policy meeting. Odds of Fed officials keeping rates steady are around 96%, but by July, the probability is more of a 50/50 shot.

While labor conditions remain a major factor in the Fed’s calculus of rate trajectory, several policymakers have cited sticky inflation as an increasing risk in recent weeks.

That makes PPI data, as well as the official inflation measures of CPI and PCE, worth watching closely in the coming weeks for hints on what’s in store for the Fed in the second quarter and beyond.

The BLS will release the producer price index for January tomorrow.

The Institute for Supply Management releases its Chicago Business Barometer for February. The consensus call is for a 52.5 reading, 1.5 points less than in January. The January figure was the highest since November 2023.

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