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Wall Street nears records ahead of inflation report

Wall Street nears records ahead of inflation report


Conditions were calm in the markets and yields were also stable in the bond market. The next big event for the market could be Tuesday's update on US inflation, which economists expect to return below the 3% level.

Waiting for, Diamondback Energy soared 9.4% after announcing it would buy Endeavor Energy Resources in a deal valued at about $26 billion, including Endeavor's debt. Diamondback is using both cash and stock to pay for the purchase of the privately held exploration and production company.

Trimble rose 4.2% after the technology provider reported higher profits and revenue for the latest quarter than analysts expected. The company, whose products are used in the construction, mapping and other industries, overcame an earlier loss after also giving 2024 revenue forecasts that fell short of Wall Street estimates.

Big companies in the S&P 500 have mostly reported better-than-expected results for the final three months of 2023. More than two-thirds of companies in the index have already reported results, but several big names are still due this week next. . They include Coca-Cola on Tuesday, Kraft Heinz on Wednesday and Southern Co. on Thursday.

The smaller companies in the market, meanwhile, are still in the early days of the earnings release season. But they beat analysts' expectations even more than their larger rivals, according to Bank of America strategists.

Concerns have grown over the top-heavy stock market, where the seven largest companies have contributed a disproportionate share of the S&P 500's rally to a record. If more companies, outside of the group known as the Magnificent Seven, manage to generate strong earnings growth, it could ease criticism that the market has become too expensive.

Another concern for the market is uncertainty over the danger posed to the economy by banks' loans and other holdings on their balance sheets linked to commercial real estate.

The widely held expectation, even among senior U.S. government officials, is that weakness in office buildings and other commercial projects will cause at least some difficulty for banks. But no one can say for sure how much.

This is why we focused so much on Community Bank of New York recently. It shocked investors two weeks ago by announcing a surprise loss for its last quarter. Part of the pain was due to the acquisition of Signature Bank during the industry's mini-crisis last year. But concerns about commercial real estate also played a role.

Shares of New York Community Bancorps have fallen by about half since that surprise report, but they remained a bit more stable Monday. It decreased slightly by 0.2%.

An index measuring share prices in the regional banking sector rose 1.8%.

On the bond market, yields have changed very little. The 10-year Treasury yield fell to 4.16% from 4.18% Friday evening.

The two-year Treasury yield, which more closely tracks expectations for the Federal Reserve, held steady at 4.48%, where it stood Friday evening.

Inflation has cooled enough for the Federal Reserve has hinted that it could cut its main interest rate several times this year. Such cuts typically boost financial markets and the economy, and they would relieve pressure built up since the Fed raised its main interest rate to its highest level since 2001.

After hoping rate cuts could begin as early as March, traders have since pushed back their forecasts to May or June. Reports showing the U.S. economy and job market remain remarkably strong, as well as some comments from Fed officials, have forced delays.

If the Fed ends up making traders wait even longer than expected for rate cuts, it could upend stock prices that have already soared assuming lots of good news, according to Marc Dizard, chief investment strategist at PNC Asset Management Group. In addition to lower interest rates, this also implies a stronger conviction that the U.S. economy is not in a recession, a continued decline in inflation, and stronger corporate profit growth.

“There’s not much more than can really happen,” he said.

On foreign stock markets, indices were slightly higher in much of Europe. In Asia, several markets were closed for holidays.

AP Business writers Matt Ott and Elaine Kurtenbach contributed.




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