The U.S. stock market experienced a drop on Thursday, primarily due to chipmaker stocks extending losses for a second consecutive day. In addition, a significant increase in producer prices left investors wondering about the potential impact on future decisions by the Federal Reserve regarding interest rates.
Rate-sensitive Sectors Take a Hit
The data revealed that U.S. producer prices rose more than anticipated in February, driven by the surge in costs of goods like gasoline and food. Consequently, rate-sensitive sectors such as utilities and real estate were among the weakest performers of the day, with real estate experiencing a decline of 1.6% and utilities falling by 0.8%.
With the upcoming Federal Reserve policy meeting, investors anticipate that interest rates will remain unchanged. However, there is growing uncertainty about the likelihood of a rate cut at the June meeting. The market has adjusted its expectations, reducing the probability of a rate cut by at least 25 basis points from 81.7% to 62.9% over the past week.
Despite recent hot inflation readings, the market has continued to climb higher. Tony Welch, Chief Investment Officer of SignatureFD, emphasized the market’s resilience to inflation pressures. While Fed policy may not be as accommodative as desired by investors, the possibility of further policy tightening remains low.
Nvidia shares experienced a decline of 3.2%, contributing to the 1.8% drop in the semiconductor index. The Dow Jones Industrial Average fell by 137.66 points, the S&P 500 lost 14.83 points, and the Nasdaq Composite dropped 49.24 points. Despite these setbacks, the S&P 500 remains up approximately 8% year-to-date.
The small-cap Russell 2000 index exhibited a 2% decline, signaling concerns about overextension in the market with narrow breadth. Michael James, Managing Director of Equity Trading at Wedbush Securities, highlighted anxiety surrounding the hotter PPI readings, particularly in the Russell index of small and midcap names.
While U.S. retail sales saw a modest rebound of 0.6% in February, it fell short of the expected 0.8% increase. Robinhood Markets observed a 5.2% increase in its shares after reporting a 16% growth in assets under custody for February.
Overall, the day’s trading volume on U.S. exchanges reached 13.1 billion shares, signaling active market participation. Declining issues outnumbered advancers on the NYSE and Nasdaq, with the S&P 500 marking 39 new 52-week highs and the Nasdaq Composite recording 57 new highs alongside 186 new lows.
The impact of producer prices on the U.S. stock market was evident through the market’s reaction to inflation readings, specific company performances, and overall index movements. Investors remain cautious about potential shifts in Fed policy and continue to assess market conditions accordingly.
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