The stock market rally of 2023 is losing steam - the Nasdaq and S&P 500 just notched their worst weekly runs in nearly 2 months

• The stock market rally of 2023 is losing steam, with the Nasdaq and S&P 500 notching their worst weekly runs in nearly 2 months.
• The benchmark Nasdaq and S&P 500 indexes closed out last week with a 2.14% and 1.11% drop, respectively.

US stocks are showing signs of fatigue after the best start to a year since 2019, with the most-watched equity indexes delivering their worst weekly runs in nearly two months.

The Nasdaq and S&P 500 indexes fell 2.14% and 1.11%, respectively, last week - the biggest five-day losses since mid-December. The Dow Jones Industrial Average dropped 0.17%. The declines ended a five-week advance in the Nasdaq and pared the S&P 500's year-to-date gains to about 7%.

The stock market is seeing an increase in volatility as investors get ready for Tuesday's inflation print, where some economists expect a 0.5% month-on-month rise for the first time in three months.

Inflation has been moderating since mid-2022 thanks to the Federal Reserve's aggressive interest-rate campaign. That has sparked some investor optimism that the US central bank could stop raising interest rates or even start cutting them this year. Lower interest rates tend to increase investor appetite for high-risk assets like growth stocks due to lower borrowing costs.

But a strong January jobs report and hawkish comments made by Fed Chair Jerome Powell last week have dampened hopes that the Fed could ease up on its tight monetary policy, likely contributing to the slide in stocks.

"Markets have again tripped up over their over enthusiasm for a Fed and other central bank rate pivots, with this week's CPI and retail sales expected to suggest that inflation has picked up in month-on-month terms and that US consumer spending is proving rather more resilient," said Marc Ostwald, chief economist and ADM Investor Services.

Several market commentators have grown wary that the rally in stocks could tire out soon. Those include "Big Short" investor Michael Burry, Jeremy Siegel and David Rosenberg, who have warned that stocks' early-year gains will likely prove short-lived as a Fed-fueled recession sets in.