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Tags: financial markets | inflation | federal reserve | interest rates

Wall St Advances on Inflation Data With Fed on Deck

Wall St Advances on Inflation Data With Fed on Deck
A Christmas tree outside the New York Stock Exchange marks the holiday season (AP)

Tuesday, 12 December 2023 04:12 PM EST

U.S. stocks closed higher on Tuesday as the major indexes hit fresh highs for the year, after inflation data did little to alter views for the timing of a rate cut by the Federal Reserve, as investors awaited the central bank's last policy decision of the year on Wednesday.

The November Consumer Price Index (CPI) rose 3.1% on an annual basis, in line with estimates from economists polled by Reuters, as a drop in gasoline prices was overshadowed by a rise in rents. Core prices, excluding volatile items such as food and energy costs, also matched expectations, showing a 4% annual rise.

On a month-on-month basis, consumer prices ticked up 0.1% last month, compared with estimates of remaining unchanged.

Markets had recently been pricing in a rate cut by the Federal Reserve as soon as March, but traders pared those bets and are now targeting May for the first rate cut after the central bank began its hiking cycle in March 2022.

Expectations for a cut of at least 25 basis points in March fell to 43.7%, from about 50% before the data, according to the CME Group's FedWatch Tool. The market is now pricing in a chance of about 78% for a cut in May, up from about 75% on Monday.

"The market is certainly assuming that inflation is going to keep coming down, that earnings in this next year are going to show some decent growth and the Fed is going to cut rates," said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute in St. Louis.

"The market is counting on more of a soft landing that would allow the Fed to ease up."

According to preliminary data, the S&P 500 gained 21.15 points, or 0.46%, to end at 4,643.59 points, while the Nasdaq Composite gained 99.83 points, or 0.69%, to 14,532.31. The Dow Jones Industrial Average rose 172.09 points, or 0.47%, to 36,574.35.

Wren also said stocks were facing resistance at their highs of the year, with a strong push to the upside unlikely for the near-to-intermediate term.

Another factor dampening volatility could be an options expiration at the end of the week with the S&P 500 not having registered a 1% move in either direction for 18 straight sessions, the longest such streak since August.

Markets will get another look at inflation data in the form of the Producer Price Index (PPI) before all eyes turn to the Fed's policy announcement at the conclusion of its two-day meeting on Wednesday.

The European Central Bank and the Bank of England are also scheduled to deliver their policy verdicts later this week.

Oracle slumped as the cloud services provider forecast third-quarter revenue below estimates on slowing demand for its cloud service.

Energy was the worst-performing of the 11 major S&P sectors, falling about 1% as crude prices settled down nearly 4%. The tech sector, however, was among the best-performing, touching a record high as it is on track for its biggest yearly percentage gain since 2019.

Google-parent Alphabet dipped after "Fortnite" maker Epic Games prevailed in its high-profile antitrust trial over the company.

© 2024 Thomson/Reuters. All rights reserved.


StreetTalk
U.S. stocks closed higher on Tuesday as the major indexes hit fresh highs for the year, after inflation data did little to alter views for the timing of a rate cut by the Federal Reserve, as investors awaited the central bank's last policy decision of the year.
financial markets, inflation, federal reserve, interest rates
519
2023-12-12
Tuesday, 12 December 2023 04:12 PM
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