US stocks slightly recover post hotter than expected inflation figures

Markets are closed on Monday for the Presidents’ Day holiday. Stocks have nearly recovered after last week’s inflation report, with the S&P 500 closing down 0.4% but cracking a new record-high on Thursday. The Dow Jones Industrial Average slipped 0.1% for the week and the Nasdaq Composite fell 1.3%.

The earnings report from AI company Nvidia will take center stage in the week ahead, along with reports from Walmart, Home Depot, Moderna, and Warner Bros. Discovery.

Recent data has challenged the growing economic consensus, with both the Consumer Price Index (CPI) and Producer Price Index showing prices increased more than economists projected in the last month.

The retail sales report for January revealed a greater decline in sales than anticipated by experts, indicating a lack of improvement in either consumer spending or inflation. The Fed’s “wait-and-see” strategy for lowering interest rates is supported by this data, which also supports the current belief in the market that the first rate cut will occur in June rather than March or May.

On Wednesday, the chipmaker Nvidia—which leads the way in AI—will disclose its most significant financial report of the fourth quarter reporting season. Since last May, the company has routinely exceeded analysts’ projections, which called for revenue of $20.36 billion and earnings per share of $4.60. But given Nvidia’s disproportionate weighting in major indices and its significance in the AI story, investors should be wary if the company’s run of impressive wins suddenly comes to an end. This might pose a risk to the market as a whole.

Though investor expectations have shifted, the S&P 500 has continued to make new highs, suggesting that the market narrative hasn’t changed significantly in recent weeks. AI stocks are continuing to rise as interest in the new technology is still high.