Nasdaq builds on last week’s gains; S&P 500, Dow fall to start week

US stocks closed mixed on Monday after failing to sustain momentum from the first big rally of the year last week.

Technology led the way higher, with the Nasdaq Composite (^IXIC) rising 0.6%, an outlier in the session, although far below the climb of more than 2% that the index saw earlier into trading. The S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) each turned lower into the close, falling 0.1% and 0.3%, respectively, after paring the day’s gains.

The US dollar continued its slump, while the price of oil rallied to start the week over optimism around demand as China reopens. West Texas Intermediate (WTI) crude futures, the US benchmark, rose 1.4% Monday to trade just below $75 a barrel.

Atlanta Federal Reserve President Raphael Bostic said in remarks at the Atlanta Rotary Club on Monday that the US central bank should raise interest rates above 5% by early in the second quarter and then hold them there for a “long time.”

“I am not a pivot guy,” he said. “I think we should pause and hold there, and let the policy work.”

Some of the biggest losers of 2022 led Monday’s push higher. Megacaps including Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG, GOOGLE) all closed higher.

Tesla (TSLA) was also among the day’s biggest movers, rallying nearly 6%. Beaten-down shares of Coinbase (COIN) surged 15.1%. Cathie Wood’s ARK Innovation ETF (ARKK) — a bellwether for speculative technology stocks and a large holder of each of the two aforementioned names — rose 4.6%.

Retail stocks were also in focus Monday, with several companies announcing news ahead of the key ICR Conference this week.

Lululemon (LULU) warned it expects fourth-quarter gross margins to decline as the company struggled with increased costs due to an inflation-related slowdown in consumer spending. Shares plunged 9.3%.

Late Friday, Macy’s (M) also cautioned on sales growth, and shares fell 7.6% Monday. Abercrombie & Fitch (ANF), in contrast, said its sales decline will likely be less than feared, sending shares up 8.8%.

Shares of Bed Bath & Beyond (BBBY), meanwhile, soared 23.7% in volatile trading — at one point ripping as much as 75% higher — after losing nearly half of its value last week when the embattled meme-stock retailer said bankruptcy was on the table. Bed Bath & Beyond is set to report earnings on Tuesday.

Alibaba (BABY) shares climbed around 3.2% Monday, rising for a sixth straight day, after co-founder Jack Ma agreed to give up controlling rights of fintech affiliate Ant Group.

Investors await December’s Consumer Price Index (CPI) due out Thursday – arguably the most important economic release of the month and the last significant reading before Federal Reserve officials meet Jan. 31-Feb. 1 to deliver their next interest rate increase. Wall Street will also face the first batch of earnings of the upcoming reporting season from Wall Street’s megabanks at the end of the week.

All three major US indices soared on Fridaypropelled by signs of cooling wage growth in the latest monthly jobs report. The S&P 500, Dow, and Nasdaq all surged at least 2% in the previous session. For the week, the S&P 500 and Dow Jones Industrial Average each advanced roughly 1.5%, while the Nasdaq rose 1%.

Nonfarm payrolls rose by 223,000 in December as the unemployment rate dropped to 3.5%. The figures show a persistent imbalance between labor supply and demand, but investors cheered easing wage pressures as a sign the Fed may reconsider its ambitious rate-hiking path.

“No doubt the labor market has been able to withstand prolonged rate hikes better than many expected,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office said in emailed comments. “Remember, though, that monetary policy acts on a lag so it’s likely an if and not a when for a slowdown in hiring.”

“The Fed minutes made it clear that rates will remain high for all of 2023, so investors should prepare for a bumpy ride, especially as we enter earnings season and get a glimpse of guidance in the coming weeks.”

Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

Monday also officially begins the first week of fourth-quarter earnings season, with JPMorgan (JPM), the largest consumer bank in the US, paving the way for what is poised to be a milder period for corporate finances than usual as companies grapple with pressures from inflation and higher interest rates.

Wall Street analysts have been steadily trimming earnings estimates for S&P 500 companies over the final months of 2022.

During the past quarter, analysts have lowered their EPS forecasts by a larger than average margin of 6.5% from Sept. 30 to Dec. 31, according to data from FactSet Research. By comparison, the average downward revision to bottom-up EPS estimates over a quarter was 2.5% over the past five years, 3.3% over the past 10 years, and 3.8% over the past 20 years, per FactSet.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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