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Stocks Retreat on Inflation Fears: S&P 500 and Nasdaq Dip Amid Bond Market Volatility

By:JJ Kinahan

Tech stocks have already bounced back, and a premarket rebound followed yesterday’s sell-off

  • Concern about inflation is triggering a market retreat, but tech stocks are showing resilienc and a premarket rebound hinted at recovery.
  • Bond market volatility and rising yields reflect fading hopes of a cut in interest rates; cautious optimism reigns amid market turbulence.
  • Individual stock movements are varying post-earning— Lyft has surged while Instacart and Generac face setbacks.

Stocks paused with the S&P 500 and Nasdaq Composite dipping but rebounding from intraday lows. The S&P 500 touched 4920 before closing at 4953, down 1.37%, while the Nasdaq Composite retreated 1.8%. This downturn stemmed from an unexpectedly robust inflation report that rattled markets.

The latest consumer price index (CPI) revealed a 3.1% year-over-year increase, surpassing expectations of 2.9%. Core CPI, excluding food and energy, outpaced forecasts at 3.9%. Notably, while major purchases like cars saw moderate price hikes, car insurance surged by 21%, driven by rising automobile crime and labor costs.

Bonds suffered, with prices plummeting to December levels, pushing yields on the 10-year note to 4.31%. The market's hope for a Federal Reserve rate cut dwindled, with expectations dropping to less than 9% for March and 38% for May. These projections contrast starkly with the 80% probability seen weeks ago, signaling a shift in market sentiment.

Crude oil and Nvidia both up

Oil prices continue to climb, with crude oil nearing $78 per barrel, raising concerns about potential inflationary pressures if it surpasses $80. Despite recent market frothiness, today’s pullback, albeit sharp, appeared more profit-taking than panic selling, evidenced by chipmakers like Advanced Micro Devices (AMD) and Nvidia (NVDA) recouping losses.

Market volatility spiked, as seen in the 14% increase in the VIX, albeit premarket data showed a 5% decline. The SKEW index, measuring fear of outlier-sized moves, reached levels not seen since June 2021, reflecting investor apprehension.

Individual stocks

In individual stock movements, Lyft (LYFT) surged 23% post-earnings, while Uber (UBER) announced a $7 billion buyback, propelling its premarket gain by 6%. Vizio (VZIO) spiked 26% on the news Walmart (WMT) might acquire the company for $2 billion. Conversely, Generac (GNRC) dipped over 5% on weaker-than-expected sales, while disappointing earnings at Instacart (CART) led to a projected 7% decline.

Premarket trading indicated a rebound, with S&P 500 futures up 0.5% and Nasdaq 100 futures up 0.75%. However, caution prevails amidst recent market turbulence, with potential for further selling. Investors should adhere to long-term objectives amid evolving market dynamics.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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