Stocks End Month at New Highs After Inflation Data: Markets Wrap

(Bloomberg) — Wall Street traders fearing another disappointing inflation report got a degree of relief after the Federal Reserve’s favored price gauge was on spot with estimates.

Stocks closed at all-time highs as the personal consumption expenditures index added to bets the Fed will be able to cut rates as early as June. While the PCE remained above the central bank’s 2% target — validating officials’ wait-and-see approach — the data helped allay concerns about a more significant inflation increase.

“For markets keenly focused on when the Fed will transition towards easing rates, this report will help restore confidence that it isn’t ‘if’ the Fed will begin to cut rates in 2024, but ‘when’,” said Quincy Krosby at LPL Financial.

The S&P 500 saw its 14th record this year — notching a fourth straight monthly win. The Nasdaq 100 climbed almost 1%, with Nvidia Corp. leading gains in megacaps. In late hours, Dell Technologies Inc. posted sales that beat estimates. New York Community Bancorp took a $2.4 billion hit to earnings as it identified weaknesses with its loan review process and wrote down the value of past deals. The lender named new leadership to navigate the turmoil. US 10-year yields fell one basis point to 4.25%. Bitcoin topped $61,000.

To Krishna Guha at Evercore, the PCE report contains “no new bad news” on the inflation dynamics, with June remaining a solid bet for the first rate cut. Jamie Cox at Harris Financial Group says concerns about a reacceleration in prices are “overblown”. And Chris Larkin at E*Trade from Morgan Stanley notes the data may ease some immediate doubts among traders who had begun to wonder if the Fed “would dig in its heels and keep rates higher for longer.”

Treasury yields retreated from near their highest levels of the year. The move was further aided by jobless claims data indicating labor-market softening — and by anticipation of bond-buying related to the turn of the month. 

Also, positioning indicators before Thursday’s data suggested that traders had exhausted their capacity for wagers on higher yields in the absence of new information.

Wall Street also continued to keep a close a eye on Fedspeak.

Fed Bank of San Francisco President Mary Daly said officials are ready to lower rates as needed — but emphasized no urgent need to cut given the strength of the economy. Her Atlanta counterpart Raphael Bostic reiterated it will probably be appropriate to begin easing policy this summer based on his outlook for inflation. Cleveland Fed Chief Loretta Mester said inflation data out Thursday showed that policymakers have more work to do.

Since the hot January consumer-price index data, “officials have generally balanced between acknowledging the heat as unwelcome news — but not overweighting one data point too much — especially given possible distortions,” according to Peter Williams at 22V Research.

“We still need to wait until next month’s CPI data to see if the inflationary jump we saw earlier this month was just a blip, or if it is in fact the beginning of a new inflationary trend,” said Chris Zaccarelli at Independent Advisor Alliance. “At least for today, it should be all systems go and buyers should re-emerge.”

To Michael Shaoul at Marketfield Asset Management, despite the relief that there wasn’t another upside surprise in inflation, it’s important to note that the “stickier” portions of Thursday’s data were “quite strong.”

Policymakers pay close attention to services inflation excluding housing and energy, which tends to be “stickier.” That metric increased 0.6% from a month ago, the most since March 2022. Costs for portfolio management — which climbed by the most in three years — and accommodation led the advance.

Corporate Highlights:

• Hewlett Packard Enterprise Co. reduced its outlook for sales growth and profit in the current fiscal year, citing lower demand for networking products and a crunch in computer chip availability.
• B. Riley Financial Inc. posted a wider quarterly loss, halved its dividend and delayed filing its annual report while it studies transactions with a key client that have drawn attacks by short sellers.
• Mattel Inc. said it identified deficiencies in its internal financial controls and is unable to file its annual report.
• Fisker Inc. plans to cut 15% of its workforce as the electric vehicle maker said there is “substantial doubt” about its ability to continue operating if it can’t secure new financing.
• Investment giant Vanguard Group Inc. said its chief executive officer, Tim Buckley, will retire by year-end after more than three decades at the company.
• Eastman Kodak Co. is contemplating a move to unlock gains created by its overfunded pension system, according to people with knowledge of the matter.
• Snowflake Inc. suffered its worst stock decline ever after the software maker delivered a disappointing sales forecast and announced that Chief Executive Officer Frank Slootman is stepping down from the role.
• Best Buy Co. struck a more upbeat tone about reversing a two-year slump amid soft demand for electronics and appliances.

Key Events This Week:

• China official PMI, Caixin manufacturing PMI, Friday
• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Friday
• BOE chief economist Huw Pill speaks, Friday
• US construction spending, ISM Manufacturing, University of Michigan consumer sentiment, Friday
• Fed’s Raphael Bostic and Mary Daly speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.9%
• The Dow Jones Industrial Average rose 0.1%
• The MSCI World index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.3% to $1.0808
• The British pound fell 0.3% to $1.2624
• The Japanese yen rose 0.5% to 149.91 per dollar

Cryptocurrencies

• Bitcoin rose 2.3% to $61,956.87
• Ether rose 2.1% to $3,391.7

Bonds

• The yield on 10-year Treasuries fell one basis point to 4.25%
• Germany’s 10-year yield declined five basis points to 2.41%
• Britain’s 10-year yield declined six basis points to 4.12%

Commodities

• West Texas Intermediate crude fell 0.5% to $78.17 a barrel
• Spot gold rose 0.5% to $2,043.85 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Julien Ponthus, Michael Mackenzie and Jessica Menton.

©2024 Bloomberg L.P.