US Stocks Kickoff This Week On Another Back Foot

US stocks suffered sharp losses last week and could see further selling emerge in the week ahead.

US30 – Weekly Chart

US30 – Weekly Chart

The failure of the US30 to get above the 34,280 level saw the index fall to 32,800. The Dow could head lower in the next week or two and drag global markets with it.

What drove markets?

Global markets were lower after new figures showed US inflation remained stubborn, stamping out hopes of the Fed ending its cycle of interest rate hikes. The personal consumption expenditures price index (PCE), the Fed’s preferred inflation gauge, showed a month-on-month increase of 0.6% in January, up from 0.2% in December.

Analysts said the Federal Reserve is unlikely to pause interest rate rises, with separate figures showing households had increased spending during the month. The expectation that monetary policy will need to be tightened further has pushed global stocks toward their most significant weekly fall since the start of the year.

Monday will be the release of durable goods numbers for the United States, with a drop of -4% expected, compared to a rise of 5.6% in the previous month. Manufacturing numbers will follow later in the week for the US economy.

Financial markets are now pricing in another three 25bps rate increases at the March, May, and June Fed meetings. The US dollar surged higher across the board after the PCE release. The biggest move was against the Japanese yen after new Bank of Japan governor-elect Ueda said there was no rush to remove its yield curve control or change its easy monetary policy.

US Stock Market Insights For Investors

After economic warnings from retail giants Walmart and Home Depot, the stock had been under pressure earlier in the week. Walmart warned Tuesday morning that it was cautious about the outlook and said customers pressured by inflation shopping for lower-priced items may negatively impact margins. The retail giant’s forward guidance for full-year earnings also fell short of Wall Street estimates.

“The consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods,” Walmart CFO John David Rainey said during an earnings call. “And so that’s why we take a pretty cautious outlook on the rest of the year.”

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