Dow scores 12th record close of 2024 ahead of U.S. inflation data

See: S&P 500 reaches 5,000 for first time. Here’s what it means for the market.

Market drivers

The market saw “a little bit of profit taking” on Monday, according to James Ragan, director of wealth research at D.A. Davidson.

The speed and scope of the stock-market rally — with the S&P 500 rallying more than 7% over the course of five weeks — is making some traders nervous.

“Most people will be fixated on this week’s inflation numbers, but there’s also a potential tug-of-war between how extended the current market rally may be versus the buzz surrounding the S&P 500 topping 5,000,” said Chris Larkin, managing director for trading and investing at E-Trade from Morgan Stanley.

“While it’s true the S&P has often pushed higher after crossing ’round-number’ thresholds like this one, it hasn’t always done it after the type of rally that has unfolded since late October,” he said in emailed comments.

Larkin noted that since 1968, whenever the S&P has rallied at least 20% over a 70-trading-day period, as it did between Oct. 27 and last Thursday, “more often than not, it was lower two weeks later.”

Still, corporate earnings so far have been better than expected overall while economic data remains strong, which is positive for U.S. stocks in the short term, Ragan said in a phone interview.

Two-thirds of the way through fourth-quarter earnings season, 76% of companies have beaten bottom-line estimates, analysts at Jefferies said.

“Though we spend plenty of time thinking, analyzing and charting indicators of sentiment, flows, performance and economic health, the reality is that earnings revisions really do the best job of divining what direction stocks are likely to go in. And that leads us to flag that it’s probably fundamentals, more than anything else, that are perpetuating the rally that started late last year,” said Andrew Greenbaum, senior vice president of equity research product management at Jefferies.

Market Extra: Stocks have been moving a lot more than usual after earnings. Here’s why, and what it could mean.

Still, Tuesday’s release of U.S. consumer-price index data could derail those fundamentals.

Also see: The first big inflation report of 2024 is coming out. Here’s what the CPI is likely to show.

“The [Federal Reserve] continues to look forward to rate cuts to offset an expected tightening of financial conditions as inflation returns to 2%, but the timing and magnitude remain elusive given the strength of the economy and lingering uncertainty over the path of inflation,” said Tim Duy, chief U.S. economist at SGH Macro Advisors.

Read: What investors stashing $6.5 trillion away in cash should do as Fed pushes back on rate-cut expectations

Companies in focus

• Diamondback Energy Inc.
  FANG,
  +0.50%
  and Endeavor Energy Resources LP on Monday confirmed reports they’re combining in a deal valued at about $26 billion including debt, marking the latest big oil merger. Diamondback shares closed up 9.4%.

• Shares of Big Lots Inc.
  BIG,
  +4.29%
  plunged 28% after Loop Capital warned investors away from the discount home-essentials retailer, citing a “precarious” financial situation and loss of relevance with consumers.

• Shares of AbbVie Inc.
  ABBV,
  +0.51%
  fell 0.6% after the biotech lowered its first-quarter guidance to reflect the dilutive impact of its closure of the acquisition of ImmunoGen.

• Rivian Automotive Inc. shares
  RIVN,
  -0.31%
  finished down 2.1%. A Barclays analyst downgraded the stock to equal weight from overweight in a Monday note to clients, while cutting his price target to $16 from $25 and warning that the electric-vehicle maker’s “leading technology” may not be enough to withstand a challenging environment.

Don’t miss: Recession fears evaporate in new forecast of top economists

Steve Goldstein contributed.