Tech Stocks Fall Before CPI as Bonds Edge Higher

Brian Belski, CEO & CIO at Humilis Investment Strategies, discusses the rotation from mega cap growth to value.

Wall Street traders drove a rotation out of technology stocks and into economically sensitive areas of the market while bonds edged up ahead of key inflation data, with markets hoping for evidence that price pressures are on a downward path.

While than 320 shares in the S&P 500 rose, the gauge was little changed. In a sign of broader market participation, an equal-weighted version of the US equity benchmark - which strips out market-value biases - hit all-time highs. A closely watched exchange-traded fund tracking software firms retreated. Cisco Systems Inc. sank 9.5% on a tepid margin forecast.

In the run-up to the consumer price index, Treasury yields edged lower. That followed a slide driven by a solid jobs report that saw traders paring their wagers on Federal Reserve rate cuts. Data Thursday showed jobless claims edged down last week following a surge during severe winter weather in the previous period.

Forecasters expect an underlying metric of inflation — which excludes food and energy costs — to rise at the slowest annual pace since early 2021. The Fed chose to hold interest rates steady in January given signs of stabilization in the labor market and inflation that’s still elevated.

“Our takeaway is that the economy is seeing neither broad-based disinflation nor an inflation pickup,” said Anna Wong at Bloomberg Economics.

The Treasury market has entered a holding pattern ahead of Friday’s inflation data, and we’re left to consider the extent to which Friday’s CPI can potentially reprice the US rates market, noted Ian Lyngen at BMO Capital Markets. Markets are complacent on the outlook for US inflation, making trades that pay out if price pressures climb look attractive, said to Benjamin Wiltshire at Citigroup Inc. Investors may be underestimating the resilience of the US consumer and market expectations for inflation are likely to be revised slightly higher, he noted.

“Markets seem to have this conviction that inflation is going to come down,” Wiltshire said in an interview. “We’re still in a structurally higher inflation environment.” Corporate Highlights:

Cisco Systems Inc. gave a weaker-than-expected forecast for profitability in the current quarter, spurring concerns that mounting memory-chip prices are taking a toll on the company.

AppLovin Corp. reported its fourth-quarter results and gave an outlook. While both were above consensus expectations on key metrics, they may not be strong enough to assuage recent concerns over AI-related disruption.

Fastly Inc., an infrastructure software company, posted fourth-quarter results that beat expectations and it gave a robust full-year forecast. William Blair upgraded their recommendation on the stock.

Anthropic PBC is donating $20 million to a political advocacy group called Public First that’s backing congressional candidates who favor safety rules for artificial intelligence, bolstering the company’s fight for “responsible AI” as Silicon Valley money floods into congressional races across the US.

Lenovo Group Ltd. expects the memory crunch to affect the global hardware industry for the rest of the year, Chief Executive Officer Yang Yuanqing said on Thursday.

SoftBank Group Corp. sprang back to a quarterly profit after investment gains from OpenAI neared $20 billion, a promising start for one of Masayoshi Son’s signature gambles alongside ByteDance Ltd. and Alibaba Group Holding Ltd.

Samsung Electronics Co. claimed an early lead in the race to supply advanced memory for AI accelerators like those made by Nvidia Corp., a milestone for a Korean company that’s seeking to displace its rivals in a pivotal market.

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