Treasury Yields Rise, Stocks Mixed as Fed Holds Rates Steady

Treasury yields climbed and stock movements were minimal after Federal Reserve Chair Jerome Powell reiterated the central bank's cautious approach to interest rate changes.

Bond Yields Increase

Bonds fell across the curve, with money markets anticipating one rate cut by the Fed this year.

Equity Market Volatility

Equities experienced negligible changes, with the S&P 500 hovering near its narrowest trading range in 2025. Large technology companies declined, with Meta Platforms extending its gains to 17 consecutive days. Conversely, Intel and GlobalFoundries surged following Vice President JD Vance's announcement of US efforts to secure domestic production of advanced artificial intelligence hardware.

Powell's Remarks

Speaking before the Senate Banking Committee, Powell emphasized that the Fed's policy stance remains accommodative, with no immediate plans for rate reductions. However, the Fed is open to further easing if inflation continues to moderate.

Consumer Price Index (CPI) Expectations

Ahead of the release of key CPI data, Powell downplayed the impact of the labor market on inflationary pressures. He also declined to speculate on tariff policy. Powell is scheduled to testify before the House Financial Services Committee on Wednesday.

Market Reaction to CPI Outlook

A survey conducted by 22V Research indicates that 41% of respondents anticipate a risk-off market response to the CPI reading, while 31% predict a risk-on reaction and 28% expect a negligible impact.

US Inflation and Economic Outlook

Recent inflation data suggests limited downward momentum, while robust job growth supports the economy. The upcoming CPI report is expected to show a 0.3% increase in core CPI for January, marking the fifth increase in the past six months. However, annualized core CPI is projected to decline marginally to 3.1%, indicating a slight easing from the mid-2024 level.

Fed's Patience and Interest Rate Prospects

Market observers anticipate that the Fed will maintain its target interest rate range of 4.25%-4.50% at its March meeting, given the strong labor market and elevated inflation. Traders are pushing out expectations for future rate cuts to mid-2025.

Citigroup's Investor Positioning

Investor exposure to US stocks has weakened, with both bullish bets and gross positioning decreasing. While net positioning remains moderately bullish for the S&P 500 and Nasdaq, gross positioning levels are lower, particularly for the Russell 2000. Europe is perceived as gaining from this shift, with positive catalysts potentially enhancing the investment outlook for the region.

Corporate Highlights

* Boeing delivers more jets than Airbus in a month for the first time in nearly two years.
* Coca-Cola beats profit expectations as consumers absorb higher prices.
* Shopify surpasses revenue estimates, showcasing the strength of its e-commerce offerings.
* Humana reduces Medicare Advantage membership.
* Travelers expects $1.7 billion in losses from Los Angeles wildfires.
* DuPont earnings rise on electronics market growth.
* S&P Global beats earnings estimates on strong corporate debt issuance.
* Kellogg beats profit expectations despite sales challenges.
* Marriott's net room growth forecast lags analyst expectations.
* Elliott Investment Management acquires a significant stake in Phillips 66 and plans to push for asset divestitures.

Key Events This Week

* US CPI: Wednesday
* Testimony from Fed Chair Jerome Powell: Wednesday
* Speeches by Fed's Raphael Bostic and Christopher Waller: Wednesday
* Eurozone industrial production: Thursday
* US initial jobless claims and PPI: Thursday
* Eurozone GDP: Friday
* US retail sales, industrial production, and business inventories: Friday
* Speech by Fed's Lorie Logan: Friday

Market Movements

* S&P 500 remains largely unchanged
* Nasdaq 100 declines 0.2%
* Dow Jones Industrial Average flat
* Bloomberg Dollar Spot Index drops 0.2%
* Euro gains 0.3% against the US dollar
* British pound rises 0.4% against the US dollar
* Japanese yen falls 0.3% against the US dollar
* Bitcoin and Ether decline
* 10-year Treasury yield rises four basis points
* Oil prices climb
* Gold prices slightly lower