Morning in New York: inflation statistics will set the vector for trading

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The upcoming session will be centered on the PCE deflator report for January, as well as statistics on personal income and expenditures of Americans. Our model points to a 0.22% m/m rise in total PCE and 0.29% m/m rise in core PCE, while the consensus looks tighter, especially for the second indicator. If core inflation is closer to 0.4-0.5% m/m, it would be a negative signal for the market as it would not give the Ma any additional reason for the Fed to cut the rate. A result of +0.3% mom would, in our view, look quite acceptable and would be in line with the scenario of gradual disinflation.

We expect household spending growth in January at 0.3% mom, which is in line with the consensus, although the spread of forecasts remains very wide. The release will be important both for assessing the sustainability of consumer demand and for preliminary guidance on the pace of GDP growth for the first quarter, especially if there are signs of a slowdown in the growth of spending on services. The consensus expectation for US personal income could rise by 0.5% mom, but we believe these expectations are somewhat overstated relative to last months' trend of close to 0.3% mom. A weaker result could be sensitive for the market, as it would reinforce doubts about the sustainability of private demand.

Of interest to traders this Friday, March 13, will also be the second estimate of US GDP for the fourth quarter (a moderate upward adjustment is likely), the JOLTS report for January (a recovery from a weak December is not ruled out), as well as preliminary data on durable goods orders. The latter are important primarily in terms of the index excluding transportation and capital goods excluding aviation and defense. In this segment we forecast the continuation of a moderate uptrend. In general, Friday's package of macrostatistics will be important for expectations on the Fed Funds rate. This data can significantly affect the market sentiment.

On the eve after the close of trading on March 12, the external background deteriorated. Reports of the US KC-135 crash in Iraq and ongoing attacks on shipping reinforced the perception of the conflict over Iran as a protracted geopolitical risk to markets and energy infrastructure. An additional negative was the launch of U.S. Section 301 investigations against 60 countries over practices related to forced labor, raising the risk of a new round of trade tensions. At the same time, Washington issued a 30-day license to buy Russian oil already at sea to partially alleviate pressure on the energy market, but this reduces short-term stress rather than removing the geopolitical risk itself.

Futures on S&P 500 show about zero dynamics. We assess the balance of risks for the upcoming session as neutral, with increased volatility ahead of the release of PCE data and ongoing tensions around the Strait of Hormuz.

- Adobe (ADBE) quotes are down 7.5% before the start of the main session. The company's revenue and adjusted earnings for the first quarter of the fiscal year beat consensus. However, the investment community was concerned about the news of Shantanu Narayen's impending departure as CEO. The market once again focused on the risks associated with the monetization of AI tools and increased competitive pressure, viewing the change in leadership as a factor of additional uncertainty in the absence of signals of stronger growth acceleration.

- Ulta Beauty (ULTA) stock is losing more than 8% in pre-market trading. Even strong holiday sales could not outweigh the extremely cautious outlook for fiscal 2026. Management separately cited rising operating expenses and external macroeconomic risks, which was taken by stock players as a sign of normalization of growth rates and inevitable margin compression after a period of abnormally high momentum.

- In the software segment, attention is focused on SentinelOne (S). During the premarket, the issuer's shares are down 5% due to a conservative guidance on earnings for the current quarter. The company's revenue and recurring revenue (ARR), which topped $1.1 billion, were in line with average expectations, but investors continue to show increased focus on aggressive competition, demanding clearer evidence of operational efficiency.

- PagerDuty (PD) stock collapsed by more than 14% in the premarket, despite the company's third consecutive quarter of solid GAAP profitability. The reason for the sell-off was the extremely subdued pace of business expansion. Revenue growth was just 2.7% year-over-year, with ARR up just a token 1%. In the current market conditions, investors are not ready to accept stagnant performance in exchange for moderate profitability and are waiting for more convincing signs of scaling.

- ServiceTitan (TTAN) faces a correction of almost 7% during the preliminary session. Even with strong revenue growth and a solid full-year outlook, the stock has come under pressure. The market is skeptical about the sustainability of the company's growth without significant upside to Wall Street expectations and a clearer confirmation of the effectiveness of integrating AI solutions into the current business model.

March 12 trading on the American stock exchanges ended in a noticeable minus. S&P 500 lost 1.52%, NASDAQ 100 fell by 1.73%, Dow Jones fell by 1.56%, and Russell 2000 fell by 2.12%. The main negative driver was the escalation of the conflict in the Middle East and the resulting jump in government bond yields. Representatives of the "Magnificent Seven" closed in the red zone.

The energy sector (XLE: +0.93%) was the leader of growth on the back of soaring oil prices. The list of outsiders included the industrial sector (XLI: -2.51%) and suppliers of cyclical consumer goods (XLY: -2.3%), which are most sensitive to rising inflation expectations and logistical disruptions.

The published macro statistics only strengthened the "hawkish" sentiment. The number of initial jobless claims (213k) was slightly below forecasts, confirming the favorable state of the labor market. The housing construction data for January came as a positive surprise, showing an increase of 7.2% m/m against the forecasted contraction.

The debt market reacted to these releases by increasing yields (two-year USTs added 10 bp), as the stability of the economy combined with the threat of energy inflation forced investors to reconsider expectations on the pace of Fed policy easing. Futures are now pricing in only a 17bp rate cut before the end of the year vs. 53bp at the start of the month.

Geopolitical tensions reached a new peak after statements by Iran's new Supreme Leader Mojtaba Khamenei that the Strait of Hormuz should remain closed to put pressure on adversaries. As a result, the price of Brent crude oil for the first time since August 2022 consolidated above $100 per barrel. News from the financial sector added fuel to the fire: Morgan Stanley, following J.P. Morgan, restricted the possibility of withdrawal of funds from its private credit funds, which increased concerns about systemic risks in this segment. An additional factor of uncertainty was the resumption of trade wars. The White House initiated a series of investigations (Section 301) against trading partners, including China.

- Concerns about a liquidity crisis in the private credit sector drove Morgan Stanley (MS: -4.1% at the close of trading on March 12) shares lower after the bank followed competitors in limiting redemptions from its North Haven Private Income Fund due to a surge in withdrawal requests.

- Management's conservative earnings growth expectations for 2026 offset Dollar General's (DG: -6.1%) strong current results, pointing to continued pressure on budget-conscious consumers in the U.S..

- Amid the ongoing blockade of the Strait of Hormuz and expected global shortages, demand for CF Industries Holdings (CF: +13.2%) shares intensified as the US fertilizer producer is seen as a key beneficiary of the logistics crisis in the Middle East.

- Firefly Aerospace (FLY: +12.8%) successfully completed its seventh launch of an Alpha rocket carrying a Lockheed Martin demonstration payload and confirmed key Block II updates.

- Strong fourth-quarter financial results, including gross margin growth, helped Descartes Systems Group (DSGX: +4.2%) stock recoup some of its recent losses due to investor concerns about the impact of AI solutions on the logistics software market.

- Anxiety in the investment community about the situation in the financial industry triggered a collapse in shares of Deutsche Bank (DB: -6.6%), after the financial institution's 2026 outlook included a $30 billion exposure to the private lending market, despite management assurances that there were no critical risks.

This article was AI-translated and verified by a human editor