Wall Street rises after CPI data but Fed concerns remain

  • Consumer prices rise moderately in November
  • Growth, real estate stocks rise when yields fall
  • Moderna rises with optimistic study data

NEW YORK, Dec 13 (Reuters) – US stocks rose on Tuesday after a surprisingly small increase in consumer prices spurred optimism that the Federal Reserve may soon roll back its inflation-dampening rate hikes, but concerns remained that the central back would remain aggressive could.

The benchmark S&P 500 (.SPX) surged as much as 2.76% to a three-month high after it was revealed that US consumer prices rose little in November as gasoline and used cars fell, the lowest annual figure at 7.1 Inflation rise for almost a year led %.

Rising expectations for smaller and slower Fed rate hikes helped push rate-sensitive metrics like the S&P 500 Growth Index (.IGX) and the S&P 500 Housing Index (.SPLRCR) to their highest levels in nearly three months.

Fed fund futures prices implied an overwhelming chance that the Fed will follow an expected half-point rate hike this week, with smaller 25 basis-point hikes at its first two meetings in 2023 and just under 5 through March % will end .

Morgan Stanley US chief economist Ellen Zentner now sees even lower Fed rate hikes by 25 basis points at the February Fed meeting and no further hikes in March, leaving the top Fed funds rate at 4.625%.

Still, stocks fell ahead of Wednesday’s Fed policy statement, in which the bank is widely expected to announce a 50 basis point rate hike.

“There was some excitement early on that the CPI number was yet again below expectations — showing some sequential cooling — but when we saw that initial bang, stock investors did something of a re-rating,” said Jason Ware, Chief Investment Officer at Albion Financial Group in Salt Lake City, Utah.

“That likely took some of the steam off markets as investors realized that (Fed Chair) Jerome Powell may very well throw cold water on today’s rally tomorrow.”

According to preliminary data, the S&P 500 (.SPX) was up 28.75 points, or 0.72%, to 4,019.31 points, while the Nasdaq Composite (.IXIC) was up 111.56 points, or 1.00%, to 11,255.29 . The Dow Jones Industrial Average (.DJI) was up 101.79 points, or 0.30%, to 34,116.91.

Energy (.SPNY) was among S&P’s best-performing sectors on the day as weaker-than-expected inflation data sent the dollar lower and crude oil prices higher.

The CPI figure follows last week’s November PPI report, which came in slightly higher than expected but indicated the trend is weakening.

Still, some questioned whether the price trend could continue.

“Today’s CPI is increasingly good, but it needs to be sustained,” said Venu Krishna, head of US equity strategy at Barclays in New York.

“There is a big question mark as to whether we can actually achieve 2% inflation (the Fed target). Maybe we live in a world where it will be higher and that means rates will be higher and then multiples will certainly be lower.”

Moderna Inc (MRNA.O) surged after the biotechnology company’s experimental vaccine combined with Merck & Co Inc’s (MRK.N) blockbuster drug Keytruda showed promising results in a skin cancer study. Merck shares also rose.

Pinterest Inc (PINS.N) rose after Piper Sandler upgraded the social media platform’s stock to overweight from neutral.

Reporting by Chuck Mikolajczak, additional reporting by Carolina Mandl; Edited by Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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