By Yasin Ebrahim
Investing.com — The Dow closed lower Tuesday, as investors digested the latest data showing signs of cooling, but stickier inflation that triggered a jump in Treasury yields on bets for a more aggressive Federal Reserve.
The Dow Jones Industrial Average fell 0.46%, or 156 points, the Nasdaq was up 0.57%, and the S&P 500 was flat.
The consumer price index rose 0.5% last month, in line with expectations, but for the 12 months through January was 6.4%, above expectations of 6.2%. Core inflation, which strips out energy and food prices, slowed to an annualized pace of 5.6% in January, though that was smaller than the expected decrease of 5.5%.
“Inflation has peaked but isn’t declining as quickly as the Fed would have liked,” Jefferies said in a note.
The 2-year Treasury yield, which is sensitive to rate hikes, jumped to a more than 3-month high, topping 4.6% as investors continue to price further Fed rate hikes.
Markets are now expecting that “the FOMC will raise its terminal rate from 5.25% in December to 5.5% in March when the dots get updated, and possibly higher,” Scotiabank Economics said in a note.
The move higher in rates pegged back growth sectors of the market including big tech, but that was more than offset by strength in semiconductors, led by Nvidia.
NVIDIA (NASDAQ:NVDA) closed more than 5% higher after Bank of America waxed lyrical about the chipmaker’s potential boost from a surge in demand for artificial intelligence programs.
Nvidia is in pole position to lead the “AI arms race,” Bank of America said and raised its price target on the chipmaker to $255 from $215 a share.
Palantir Technologies (NYSE:PLTR), meanwhile, was also a source of optimism for tech as the data analytics company’s stock price soared 21% after reporting its maiden quarterly profit.
The company said it expected to remain in profit for 2023, confounding Wall Street expectations for a full year loss of 11 cents a share. But some remain cautious on the stock, citing “ambitious” guidance.
“Palantir established another seemingly overly ambitious target of 40% US Commercial growth in CY23. All in all, we walked away from the print incrementally cautious, and we’re sticking with our underperform rating,” Deutsche Bank said in a note.
Elsewhere on the earnings front, Avis (NASDAQ:CAR) delivered quarterly earnings of $10.46 a share, markedly better than forecasts of $6.81 a share, sending its stock up 10%.
Consumer staples were one of the biggest drags on the market, weighed down by a more than 1% fall in Coca-Cola (NYSE:KO) after the beverage giant reported in-line earnings, but revenue that topped estimates.
Coca-Cola’s bottom line was kept in check by “headwinds from the BODYARMOR acquisition and higher operating costs,” Goldman Sachs said, though pointed to “strong” guidance as a reason for optimism.
“Overall we think KO’s guidance is reflective of better than feared consumer elasticities despite the recent and significant price increases the industry has implemented,” it added.