Stock Market Today: Stocks Struggle for Direction After Inflation Data

Stocks bounced between positive and negative territory Tuesday as investors considered whether to take the latest consumer price index (CPI) as a glass half full or a glass half empty. 

On one hand, the data showed inflation continued to cool in January. But on the other hand, the pace of moderation slowed as prices for energy, food and rent all increased. Despite the choppy session for indexes, one tech stock surged 21.2% after reporting its first-ever profit.  

Taking a closer look at the January CPI numbers shows headline inflation rose 6.4% year-over-year. This was down from December's 6.5%, and marked the seventh straight monthly decline for the consumer price index after it peaked at 9.1% in June. Still, the 6.4% rise was slightly higher than economists were expecting. Meanwhile, core CPI, which excludes volatile food and energy prices, was up 0.4% on a monthly basis, faster than the 0.3% monthly increase seen in December.

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Experts were quick to weigh in after this morning's report, with many speculating that the data supports more interest rate hikes from the Fed going forward. "The good news is that inflation is not going up, but it's not really going down either," says Anthony Denier, CEO of commission-free trading platform Webull. "The fly in the ointment is that even though the year-over-year numbers are going down, both core and headline CPI are a little bit higher than expectations." This, Denier says, is because energy and food prices were both notably higher. 

"While financial conditions have eased, the Fed may have to do another big hike to put in place the conditions to bring down inflation further, which remains very high. And that probably won't be good for stocks," Denier adds.

While the broader stock market churned following today's CPI report, Palantir Technologies (PLTR) made a beeline higher. PLTR stock soared more than 21% after the data software company reported fourth-quarter net income of 1 cent per share – the first profit ever for the firm – compared to a per-share loss of 8 cents in Q4 2021. Revenue was up 18% year-over-year to $509 million. Palantir, which is one of Wall Street's best AI stocks, also said it expects to be profitable on a GAAP basis in fiscal 2023.

As for the major indexes, the Nasdaq Composite closed up 0.6% at 11,960, while the S&P 500 shed 0.03% to 4,136, and the Dow Jones Industrial Average slipped 0.5% to 34,089. 

Use dividend, defensive stocks to protect portfolios

The stock market's roller-coaster ride could continue in the near term. "Investors are likely to see market volatility in the coming days driven by disillusionment over previous optimism that the Fed would back off its higher interest rates for [a] longer-than-expected approach to fighting inflation," says José Torres, senior economist at Interactive Brokers. "On top of that concern, the year-to-date market rally has pumped up equity valuations despite a weakening outlook for corporate earnings. The combination of expectations for a longer inflation battle, higher valuations and weakening earnings is likely to be a bitter pill for investors."

As we've mentioned before, there are ample strategies investors can use to protect their portfolios against market volatility. These include targeting the best dividend stocks, like companies sporting the highest dividend yields in the S&P 500. Additionally, focusing on defensive sectors like the best utility stocks or the best REITs (real estate investment trusts) can add stability in an uncertain environment.