Michael M. Santiago
Wall Street on Tuesday ended solidly higher, after latest data on consumer inflation did little to alter market expectations in terms of interest rate cuts. Technology and artificial intelligence related stocks got a boost from Oracle (ORCL) and Nvidia (NVDA).
The tech-heavy Nasdaq Composite (COMP:IND) and the benchmark S&P 500 (SP500) both advanced more than 1%. The former gained 1.54% to close at 16,265.64 points, while the latter added 1.12% to settle at a record closing high of 5,175.26 points. The blue-chip Dow (DJI) climbed 0.61% to conclude at 39,005.46 points.
Of the 11 S&P sectors, seven ended in the green, led by heavyweight growth names Technology, Communication Services and Consumer Discretionary.
Before the opening bell, data from the U.S. Bureau of Labor Statistics showed that the headline consumer price index (CPI) in February rose 0.4% M/M, its largest increase since September 2023. Analysts had expected a rise of 0.4%, while headline CPI in January had been +0.3%.
Core CPI, which excludes food and energy, came in at +0.4% M/M, flat from January and a tad higher than the anticipated figure of +0.3%. On an annualized basis, core CPI was +3.8% in February, moderating from January’s +3.9% but above the estimate of +3.7%.
U.S. stocks index futures had whipsawed in immediate reaction to the slightly hotter-than-expected report, but then quickly stabilized in the green. Wall Street then opened higher and the three major averages climbed since, as investors see the CPI report as doing little to alter the Federal Reserve’s cautious stance in terms of cutting interest rates only after being confident that inflation was coming down.
According to the CME FedWatch tool, markets still expect the first 25 basis point rate cut to come in June, with those odds remaining unchanged at about 59% from a day ago.
Treasury yields were higher after the CPI report. The longer-end 30-year yield (US30Y) was up 4 basis points to 4.31%, while the 10-year yield (US10Y) was up 5 basis points to 4.15%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 6 basis points to 4.59%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
The February consumer price index data continued the trend of higher-than-expected inflation. While food prices were stable, shelter costs rose. Stubborn inflation above the Fed’s 2% target could likely make rate cuts a later-than-sooner event,” Andrew Hecht, investing group leader of Hecht Commodity Report, told Seeking Alpha.
“While stocks were steady, bonds and gold were lower after the February CPI data. Most market participants believe the Fed will lower interest rates in 2024; the election and nagging inflation could push rate cuts into 2025. Expect mounting pressure on the Fed to justify its 2% inflation target,” Hecht added.
Traders also received the U.S. Treasury’s monthly statement for February, which showed that the country’s federal budget deficit ballooned to $296B for the month from January’s $22B deficit, but lower than the estimated shortfall of $298.5B.
Turning to active stocks, Oracle (ORCL) surged nearly 12% and ended as the top percentage gainer on the S&P 500 (SP500), as the cloud software giant’s quarterly results impressed Wall Street. Oracle (ORCL) also signed a number of big cloud contracts spurred by artificial intelligence (AI) demand, giving a boost to AI-related stocks.
Nvidia (NVDA) ended as a top S&P percentage gainer as well, ahead of the company’s annual GTC AI conference starting on March 18.
Southwest Airlines (LUV) tumbled about 15% and ended as the top S&P percentage loser, after the U.S. carrier revised its guidance for several key financial metrics due to lower aircraft deliveries from Boeing (BA).
