Another hotter-than-expected reading on inflation sent stocks sharply lower early Friday. An encouraging update on consumer sentiment helped indexes swing higher mid-morning, but the positive price action was short-lived.
Ahead of the opening bell, data from the Bureau of Labor Statistics showed the January Producer Price Index (PPI), which measures what businesses are paying suppliers for goods, was up 0.3% month-over-month, higher than the 0.1% increase economists were expecting. On a year-over-year basis, headline PPI rose 0.9%.
Core PPI, which excludes volatile food and energy prices, rose 0.6% from December to January, the biggest monthly increase since January 2023. The annual increase in core PPI was 2.6%, matching what was seen in December.
Today's inflation data – along with Tuesday's Consumer Price Index (CPI) report – have "aligned the Fed's projected rate path with the market’s, as investors are now pricing in just three cuts this year; earlier this year, they had expected seven," says José Torres, senior economist at Interactive Brokers.
However, the reset in expectations has yet to meaningfully impact stock prices "with bullish sentiment and better-than-expected earnings reports providing robust support," the economist adds.
Consumer sentiment hits two-year high
Indeed, while markets hit their session lows shortly after the open, they briefly turned higher mid-morning after the University of Michigan said its consumer confidence index rose to 79.6 in February from January's 79.0.
True, this is a modest 0.8% rise, but it marks the highest reading since July 2021. Plus, "the fact that sentiment lost no ground this month suggests that consumers continue to feel more assured about the economy, confirming the considerable improvements in December and January across various aspects of the economy," the report stated.
What's more, the results showed that consumers are expressing confidence that disinflation trends and a strong labor market will continue.
Coinbase Global pops after a surprise profit
In single-stock news, Coinbase Global (COIN) surged 8.8% after the cryptocurrency platform reported an unexpected fourth-quarter profit of $1.04 per share on higher-than-anticipated revenue of $954 million.
Roku (ROKU) was another notable earnings mover, only its shares plunged 23.8% after the streaming service provider's fourth-quarter results. While Roku posted a per-share loss of 55 cents on $984 million in revenue – both inline with analysts' estimates – average revenue per user was down 4% year-over-year.
Additionally, in the company's earnings call, Chief Financial Officer Dan Jedda warned of "challenging macro environment and uneven ad market recovery" that could impact near-term results.
Loop Capital thinks Nvidia can rally another 65%
Meanwhile, Nvidia (NVDA, -0.06%) was in focus ahead of its own appearance on the earnings calendar after next Wednesday's close. The Magnificent 7 stock received a bull note today from Loop Capital, which initiated coverage on NVDA with a Buy rating and a $1,200 price target. This new target price is the highest on Wall Street and represents implied upside of 65% to current levels.
The analysts believe there is "material upside" to the Street's earnings estimates for the next two fiscal years. Additionally, Loop Capital thinks Nvidia is poised to benefit from an uptick in IT spending among Fortune 1000 companies – particularly in the generative AI (artificial intelligence) space – with expected growth of 5%-8% in 2024 vs 5% in 2023.
As for the major indexes, the Dow Jones Industrial Average finished the day down 0.4% at 38,627, the S&P 500 was 0.5% lower at 5,005, and the Nasdaq Composite fell 0.8% lower at 15,775.
As a reminder, the stock and bond markets are closed this Monday, February 19, for the Presidents' Day holiday.
