Stock ETFs Dip as Investors Await CPI Data, Earnings Reports

Stock and index ETFs are dipping on Monday as investors prepare for the first-quarter earnings season and upcoming key inflation numbers.

The Dow Jones Industrial Average fell slightly from a fresh closing high on Friday, declining 0.4% on Monday. Meanwhile, the S&P 500 slipped 0.16%, but breached and held the 4100 level, while the Nasdaq Composite dropped 0.5%.

Major stock ETFs are declining on Monday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all lower just after 2 PM EST.

Stocks and index ETFs have been grinding steadily higher, but overall movement seems quiet, as volatility continues to compress, with the S&P 500 essentially within 1% for five sessions in a row. The VIX, or volatility index, has fallen below levels not seen since before the pandemic, trading below 19, as investors champion the reopening of the economy. The move has been meaningful for ETFs like the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX), which could see massive moves if volatility reverses course.

Analysts see the slowing pace of the market as indicative of uncertainty with regard to certain sectors such as technology, which led the drive higher off pandemic lows.

“Amid new highs it’s not surprising for the market to be moving somewhat in a holding pattern of late. And tech’s somewhat surprising comeback could have some traders questioning if tech names are here to stay, or if cyclical sectors will outperform as the economy edges closer to full recovery,” Chris Larkin, managing director of trading and investing product at E-Trade Financial, said in an email. “While it may be premature to declare the end of tech’s underperformance phase, keep in mind that the sector is more than a handful of mega-cap names—traders may see opportunity in lesser known pockets of the sector.”

The Calm before the Storm?

With earnings season and fresh CPI inflation data on the way, Larkin explained this could be the calm before the storm.

“All eyes will likely be on the CPI read tomorrow for a benchmark on where we stand on the inflation front. And of course we’re ushering in earnings season which could be a catalyst for market moves over the next few weeks.”

The first-quarter earnings reporting season commences this week, with projections of a continuing uptrend for U.S. stocks and index ETFs, which are bolstered by a recovering economy. Key reports will include bank stocks like Goldman Sachs and JPMorgan Chase.

“The initial reopening of the economy will trigger a huge rebound in margins across sectors which have been hit hardest by the COVID crisis,” Ian Shepherdson, Pantheon Macroeconomics chief economist, wrote in a note Monday. “The unprecedented surge in households’ cash balances over the past year – mostly due to the enforced drop in spending on services, augmented by stimulus payments – represents a potential wave of demand, while supply is constrained by business failures, especially in the restaurant sector.”

Tuesday will also see the release of much-anticipated Consumer Price Index data, where economists polled by Dow Jones projected a 0.5% gain in CPI month over month and a 2.5% climb from last year’s level. The Fed is still looking for an enduring move above 2% before raising rates.

“We want to see inflation move up to 2% — and we mean that on a sustainable basis, we don’t mean just tap the base once,” Powell said in an interview that aired Sunday evening on CBS News’ “60 Minutes.” “But then we’d also like to see it on track to move moderately above 2% for some time.”

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