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U.S. Stocks Close Mostly Higher Following Inflation Data, Fed Announcement

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June 12 2024 4:44PM

After an early rally on tamer than expected consumer price inflation data, stocks saw some volatility following the Federal Reserve’s monetary policy announcement but still managed to end Wednesday’s trading mostly higher.

The Nasdaq (NASDAQI:COMP) led the charge, surging 264.89 points or 1.5 percent to a new record closing high of 17,608.44. The S&P 500 (SPI:SP500) also reached a new record closing high, jumping 45.71 points or 0.9 percent to 5,421.03.

Meanwhile, the narrower Dow (DOWI:DJI) gave back ground after an early upward move and eventually ended the day down 35.21 points or 0.1 percent at 38,712.21.

The early rally on Wall Street came following the release of a Labor Department report showing U.S. consumer prices were unexpectedly flat in the month of May.

The Labor Department said its consumer price index came in unchanged in May after rising by 0.3 percent in April. Economists had expected consumer prices to inch up by 0.1 percent.

The unchanged reading came as a 3.5 percent nosedive by gasoline prices helped offset a continued increase in prices for shelter.

Excluding food and energy prices, core consumer prices rose by 0.2 percent in May after climbing by 0.3 percent in April. Core prices were expected to increase by another 0.3 percent.

The report also said the annual rate of consumer price growth slowed to 3.3 percent in May from 3.4 percent in April. Economists had expected the pace of growth to remain unchanged.

The annual rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April. The pace of growth was expected to dip to 3.5 percent.

The slower than expected annual growth rates led to renewed optimism about the outlook for interest rates ahead of the Fed’s monetary policy announcement.

However, while announcing its widely expected decision to leave interest rates unchanged, the Fed also revealed officials now expect only one interest rate cut this year.

In support of its goals of maximum employment and inflation at the rate of 2 percent over the longer run, the Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent.

The Fed acknowledged modest further progress toward its inflation objective in recent months but said officials still need “greater confidence” inflation is moving sustainably towards the target before they will consider lowering rates.

The continued need for “greater confidence” inflation is slowing was reflected in the Fed officials’ forecast for interest rates.

The latest projections showed officials now expect rates in a range of 5.0 to 5.25 percent by the end of 2024, suggesting just one rate cut this year compared to the three forecast in March.

Still, the accompanying dot plot indicates there is considerable division among Fed officials about the outlook for rates this year.

“More participants expect to cut twice than once, but no one expects to cut more than twice, while four don’t expect to cut at all this year,” said FHN Financial Chief Economist Chris Low. “So, a plurality favor two cuts, but the median is for one.”

Sector News

Interest rate-sensitive housing stocks turned in some of the market’s best performances on the day, resulting in a 2.9 percent spike by the Philadelphia Housing Sector Index.

Substantial strength was also visible among semiconductor stocks, as reflected by the 2.9 percent surge by the Philadelphia Semiconductor Index.

Software and computer hardware stocks also saw considerable strength, contributing to the jump by the tech-heavy Nasdaq.

Airline, banking and brokerage stocks also saw notable strength, while oil producer stocks bucked the uptrend despite an increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.7 percent, while China’s Shanghai Composite Index rose by 0.3 percent.

Meanwhile, the major European markets all moved notably higher on the day. While the German DAX Index shot up by 1.4 percent, the French CAC 40 Index jumped by 1.0 percent and the U.K.’s FTSE 100 Index advanced by 0.8 percent.

In the bond market, treasuries surged in reaction to the consumer price inflation data, extending yesterday’s rebound. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled 10.9 basis points to 4.295 percent.

Looking Ahead

Trading activity on Thursday may continue to be impacted by reaction to the Fed announcement, while reports on producer prices and weekly jobless claims are also likely to attract attention.