Despite the Dow's 100-point Gain, the S&P 500 Remains Flat as Investors Await Inflation Data and Fed Policy News

U.S. stock indexes exhibited predominantly positive trends on the morning of Monday, creating a subdued atmosphere in the market as participants awaited the imminent release of crucial inflation data and the upcoming decision on interest rates by the Federal Reserve later in the week.

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The S&P 500 (SPX) showed a marginal increase of 1 point, essentially maintaining a flat position at 4,605. Simultaneously, the Dow Jones Industrial Average (DJIA) saw an uptick of 94 points, equivalent to a 0.3% rise, reaching 36,342. Conversely, the Nasdaq Composite (COMP) experienced a decline of 56 points, translating to a 0.4% decrease, settling at 14,348.

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During the preceding Friday, the Dow industrials recorded a gain of 130.49 points or 0.4%, concluding at 36,247.87, marking its highest closing level since January 12, 2022. The S&P 500 also rose by 0.4%, reaching 4,604.37, its most favorable close since March 29, 2022. Additionally, the Nasdaq Composite climbed by 0.4% to 14,403.97, attaining its highest closing level since April 4, 2022.

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The momentum in the U.S. equities market persisted into Monday following a stronger-than-anticipated jobs report that bolstered stocks on the previous Friday. However, the market displayed a lack of definitive direction as investors turned their focus towards the impending Federal Reserve meeting scheduled for Wednesday and the significant inflation data set to precede it.

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Economists anticipate that the consumer prices for November, scheduled for release on Tuesday at 8:30 a.m. Eastern, will reveal a subdued headline inflation but a robust core reading, excluding food and energy prices.

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On Wednesday, Federal Reserve Chair Jerome Powell and his colleagues are slated to announce the results of the two-day policy meeting. The consensus among analysts is that the central bank is likely to maintain its key benchmark policy rates within a range of 5.25% to 5.5%, according to the CME FedWatch Tool.

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While market strategists generally anticipate the inflation data on Tuesday to align with expectations, they do not anticipate it to significantly alter Powell's message at the Wednesday FOMC meeting. Bank of America economists Stephen Juneau and Michael Gapen noted in a Monday note that the data might reinforce the expectation for the first Fed cut to occur no earlier than June.

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The market has priced in a high probability of the initial interest-rate cut taking place in March, a timeline that Juneau and Gapen believe is "likely too early" given their outlook on the labor market and inflation. They acknowledge that if the data on labor, activity, and inflation deviate significantly from their expectations, a cut as early as March becomes a possibility.

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The robust job data from Friday could influence Powell's statements this week, with Peter Iosif, senior research analyst at Noteris, suggesting that the data emphasizes the resilience and tightness of the U.S. employment market. Iosif also speculated that the release might reinforce the Fed's hawkish stance, potentially contradicting the market's anticipation of an early rate cut.

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Looking beyond the U.S., the European Central Bank and the Bank of England are poised to announce their policy decisions on Thursday, with the Bank of Japan expected to follow suit next week. The yen faced a decline against the dollar on Monday, following reports that central bank officials were not in a hurry to end the long-standing negative interest rate policy, as suggested by Bloomberg citing insider sources. The yen had strengthened the previous week amid growing expectations that officials were leaning towards a policy shift.