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Stocks rise as Wall Street assesses a potential slowdown in Fed rate hikes

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El-Erian says Fed should hike by 50 basis points, calls smaller increase a ‘mistake’

Inflation has moved from goods to services sector, says Mohamed El-Erian

Surging inflation may appear largely in the past, but a shift to a 25 basis point hike at the next Federal Reserve policy meeting is a “mistake,” according to Allianz Chief Economic Adviser Mohamed El-Erian.

“‘I’m in a very, very small camp who thinks that they should not downshift to 25 basis points, they should do 50,” he told CNBC’s “Squawk Box” on Monday. “They should take advantage of this growth window we’re in, they should take advantage of where the market is, and they should try to tighten financial conditions because I do think that we still have an inflation issue.”

Inflation, he said, has shifted from the goods to the services sector, but could very well resurge if energy prices rise as China reopens.

El-Erian expects inflation to plateau around 4%. This, he said, will put the Fed in a difficult position as to whether they should continue crushing the economy to reach 2%, or promise that level in the future and hope investors can tolerate a steady 3% to 4% nearer term.

“That’s probably the best outcome,” he said of the latter.

— Samantha Subin

Stocks open little changed

Stocks were little changed Monday as a busy week kicked off for earnings.

The Dow Jones Industrial Average traded flat, while the S&P 500 added 0.08%. The Nasdaq Composite last rose 0.26%.

— Samantha Subin

Spotify shares rise on layoff news

Spotify shares gained more than 5% before the bell amid news that its cutting 6% of its workforce, contributing to the wave of layoffs that have hit the technology sector as it grapples with dwindling demand and recession fears.

The company also announced the departure of Dawn Ostroff, Spotify’s chief content and advertising business officer. The layoffs equate to about 600 workers.

Spotify shares rose on news that it’s cutting 6% of its workforce

Companies making the biggest premarket moves

These companies are among those making the biggest moves in the premarket:

  • Advanced Micro Devices — The semiconductor maker rallied nearly 3% after being upgraded to overweight from equal weight by Barclays. The firm said it sees potential upside from direct-current and generative artificial intelligence.
  • Shopify — The e-commerce company rose nearly 5% after Deutsche Bank upgraded the stock to buy from hold. Brands are growing increasingly interested in Shopify, the Wall Street firm said..
  • Tapestry — The Coach parent slid 1.85% after being downgraded to equal weight from overweight by Barclays, which cited inflation that was creeping to higher household income brackets, among other reasons.

For more premarket movers, click here.

— Michelle Fox

Fed likely to discuss next week when to halt hikes, Journal report says

Federal Reserve officials next week are almost certain to approve another deceleration in interest rate hikes while also discussing when to stop the increases altogether, according to a Wall Street Journal report.

The rate-setting Federal Open Market Committee is set to convene Jan. 31-Feb. 1, with markets pricing in almost a 100% chance of a quarter-point increase in the central bank’s benchmark rate. Most prominently, Fed Governor Christopher Waller said Friday he sees a 0.25 percentage point increase as the preferred move for the upcoming meeting.

However, Waller said he doesn’t think the Fed is done tightening yet, and several other central bankers in recent days have backed up that notion.

The Journal report, citing public statements from policymakers, said slowing the pace of hikes could provide the chance to assess what impact the increases so far are having on the economy. A series of rate hikes begun in March 2022 has resulted in increases of 4.25 percentage points.

Market pricing is currently indicating quarter-point hikes at the next two meetings, a period of no action, and then up to a half-point reduction by the end of 2023, according to CME Group data.

However, several officials, including Governor Lael Brainard and New York Fed President John Williams, have used the expression “stay the course” to describe the future policy path.

— Jeff Cox

PayPal dips after report about new digital wallet from banks

Shares of PayPal were under pressure on Monday morning following a report from the Wall Street Journal that big banks will be making another entry into the digital payments space.

Bank of America, JPMorgan Chase and other banks are teaming up on a digital wallet, according to the report. The wallet would be operated by Early Warning Services, which also runs Zelle.

Shares of PayPal were down 1% in premarket trading.

— Jesse Pound

Advanced Micro Devices rises following Barclays upgrade

Advanced Micro Devices advanced roughly 3% in premarket trading Monday following an upgrade to overweight from equal weight by Barclays.

Analyst Blayne Curtis set a price target that implies a 21.3% upside from where the stock closed Friday. Despite anticipating another quarterly slide for personal computer demand, he said the company will be helped by continued server leadership and opportunities in artificial intelligence and direct current technology.

CNBC Pro subscribers can read more about the call and his other upgrades and downgrades here.

Salesforce gains on activist investor stake

Salesforce gains on activist investor stake

Wayfair jumps after JPMorgan double upgrade

Wayfair shares popped 7% in the premarket after JPMorgan double upgraded the furniture seller to overweight from underweight, citing improving market share trends.

“We are upgrading Wayfair to Overweight from Underweight given a positive shift in market share trends and management’s newfound commitment to controlling expenses/investments, which combined, should cause a significant inflection in earnings revisions from steeply negative over the past two years to positive, on top of still-attractive valuation,” JPMorgan said in a note.

— Alex Harring

Shopify shares rise after Deutsche Bank upgrade

Shares of e-commerce platform Shopify popped more than 3% after a Deutsche Bank upgrade to buy from hold.

“Many leading brands are now actively looking to migrate or are in the process of migrating over from legacy/competing solutions and we note this is in sharp contrast to our conversations over the last twelve months which consistently highlighted the pace of migrations slowing,” Deutsche said in a Sunday note to clients.

— Alex Harring

Stocks are at a key technical juncture, MKM Partners says

MKM Partners chief market technician JC O’Hara noted Sunday that the S&P 500 is dealing with conflicting technical trends, leaving it at a key juncture.

“If the S&P 500 can break and hold above the 200 DMA and the downward sloping trend channel, that would suggest the collective market is forecasting a soft-landing and 4,400 will be the target,” O’Hara said in a note Sunday. “A rejection at the trendline would mean a retest of ~3,600 and a message that the majority of market participants are increasingly anticipating a recession. Follow price is our message.”

The S&P 500 jumped 1.9% on Friday but still notched a losing week.

S&P 500 since October 2021

European markets cautious as investors weigh economic outlook

European markets started the new trading week on an uncertain note Monday with investors reassessing the economic outlook.

The pan-European Stoxx 600 was up 0.15% in early trade, with tech stocks adding 1.1% while chemicals slid 0.7%.

Stock futures open flat on Sunday

Stock futures were little changed to begin trading Sunday night.

Dow Jones Industrial Average futures ticked higher by 3 points, or 0.01%. S&P 500 futures rose 0.01% and Nasdaq 100 futures added 0.02%.

— Tanaya Macheel

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