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U.S. stocks on Thursday were mixed, as market participants digested a key economic report on Leap day which showed that the fight against inflation was far from over.
Wall Street had kicked off the trading session higher after the Federal Reserve’s favorite price gauge arrived in-line with estimates. Still, the indicator surged to its highest monthly reading in nearly a year, underscoring the sticky nature of current inflationary trends.
The tech-heavy Nasdaq Composite (COMP.IND) was last up 0.34% to 16,002.65 points in mid-day trade, having earlier risen as much as 0.9% just after the opening bell. The benchmark S&P 500 (SP500) was higher by 0.11% to 5,075.48 points. The blue-chip Dow (DJI) retreated 0.19% to 38,874.04 points.
Of the 11 S&P sectors, seven were in the green, led by Real Estate. Health Care topped the losers.
Before the start of regular trading, the U.S. Bureau of Economic Analysis published the personal income and outlays report for January. The data showed that the core personal consumption expenditures (PCE) price index – the Fed’s preferred inflation gauge – rose 0.4% M/M, coming in spot on with the estimate of +0.4% but accelerating from the 0.1% rise seen in December 2023. Moreover, the figure was the highest since February last year.
On a Y/Y basis, core PCE price index was +2.8%, also coming in-line with estimates and cooling slightly from the +2.9% increase in December.
Coming on the heels of hotter-than-anticipated consumer and price inflation reports earlier this month, today’s PCE data painted a mixed picture. On the one hand, the readings could have come in much higher than expected, and the fact that the core PCE matched consensus was probably a relief. The slight deceleration on an annualized basis will also be welcomed and will be seen as a slow but steady move towards the Fed’s 2% inflation target. On the other hand, the data reinforced concerns over inflation remaining sticky.
“The increase in the core PCE deflator for January stuck to script, coming in a hot 0.42%. But the increase was juiced by problematic seasonals. Abstracting from the measurement issues, underlying inflation appears close to 2.5% annualized. Within hailing distance of the Fed’s 2% target. And everything points to continued moderation in inflation. Time for the Fed to begin cutting interest rates,” Mark Zandi, chief economist at Moody’s Analytics, said on X (formerly Twitter).
According to the CME FedWatch tool, the PCE data resulted in a slight uptick in market expectations for rate cuts. The odds of a 25 basis point rate cut in May has edged up to about 23% from 18% a day earlier.
Some Fed speakers also weighed in on the PCE report. Atlanta Fed President Raphael Bostic at conference said that today’s data showed bumps along the way to the Fed’s 2% inflation target, also adding that the first rate cut may come this summer. Meanwhile, Chicago Fed President Austan Goolsbee in a virtual webinar cautioned that policymakers should be “careful” in extrapolating the January PCE data going forward.
Treasury yields were lower on Thursday. The longer-end 30-year yield (US30Y) was down 5 basis points to 4.36%, while the 10-year yield (US10Y) was down 4 basis points to 4.23%. The shorter-end more rate-sensitive 2-year yield (US2Y) was down 2 basis points to 4.62%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Turning to active stocks, Dow 30 component Salesforce (CRM) gained, as Wall Street praised the cloud-based software firm’s quarterly results and guidance.
Hormel Foods (HRL) was the top percentage gainer on the S&P 500 (SP500) after the food and meat processor reported a quarterly top and bottom line beat.
