Dow Posts Modest Gain But Nasdaq, S&P 500 See Further Downside

After coming under pressure over the course of the previous session, stocks saw further downside in early trading on Monday. The major averages regained ground over the course of the trading day, however, with the Dow closing modestly higher.

While the Dow inched up 46.97 points or 0.1 percent to 38,769.66 after falling nearly 240 points in early trading, the S&P 500 edged down 5.75 points or 0.1 percent to 5,117.94 and the Nasdaq fell 65.84 points or 0.4 percent to 16,019.27.

The continued weakness on Wall Street came amid uncertainty about the outlook for interest rates ahead of the release of key inflation data in the coming days.

The Labor Department is scheduled to release its closely watched report on consumer price inflation in the month of February on Tuesday.

Economists currently expect consumer prices to climb by 0.4 percent in February after rising by 0.3 percent in January.

Core consumer prices, which exclude food and energy prices, are expected to rise by 0.3 percent in February following a 0.4 percent increase in January.

Meanwhile, the annual rate of consumer price growth is expected to come in unchanged from the previous month at 3.1 percent, while annual core consumer price growth is expected to slow to 3.7 percent from 3.9 percent.

The consumer price inflation data could have a significant impact on the outlook for interest rates, with Federal Reserve officials saying they need “greater confidence” inflation is slowing before they consider cutting rates.

While the Fed is widely expected to leave rates unchanged at its monetary policy meeting next week, the data could impact expectations regarding when the central bank will eventually lower rates.

On Thursday, the Labor Department is due to release a separate report on producer price inflation in the month of February.

Producer prices are expected to rise by 0.3 percent in February, matching the increase seen in January, while the annual rate of producer price growth is expected to accelerate to 1.2 percent from 0.9 percent.

Reports on retail sales, industrial production and consumer sentiment are also likely to attract attention in the coming days.

Sector News

Despite the recovery attempt by the broader markets, semiconductor stocks still saw significant weakness on the day, with the Philadelphia Semiconductor Index falling by 1.4 percent.

Within the sector, semiconductor equipment maker Applied Materials (AMAT) slumped by 2.0 percent despite raising its quarterly cash dividend from $0.32 to $0.40 per share.

Notable weakness also remained visible among steel stocks, as reflected by the 1.2 percent loss posted by the NYSE Arca Steel Index.

On the other hand, gold stocks showed a strong move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 2.5 percent.

The rally by gold stocks came amid a modest increase by the price of the precious metal, with gold for April delivery inching up $3.10 to $2,188.60 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Japan’s Nikkei 225 Index plunged by 2.2 percent, while Hong Kong’s Hang Seng Index jumped by 1.4 percent.

The major European markets also finished the day mixed. While the U.K.’s FTSE 100 Index inched up by 0.1 percent, the French CAC 40 Index edged down by 0.1 percent and the German DAX Index fell by 0.4 percent.

In the bond market, treasuries showed a lack of direction for much of the session before closing modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.5 basis points to 4.104 percent.

Looking Ahead

Trading on Tuesday is likely to be driven by reaction to the Labor Department’s report on consumer price inflation and its impact on the outlook for interest rates.