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US stocks rose across the board on Tuesday as investors took in the first of two key inflation reports this week, which showed prices rose less than expected in December. Also in focus was a report that the incoming Trump administration could hike tariffs more gradually to ease inflationary pressures.
The benchmark S&P 500 (^GSPC) moved up roughly 0.4%, while the tech-heavy Nasdaq Composite (^IXIC) put on 0.6%, both set to bounce back from Monday’s losses. Meanwhile, the Dow Jones Industrial Average (^DJI) added 0.4% on the heels of a winning day for the blue-chip index.
The Producer Price Index, which tracks price changes companies see at a wholesale level, rose 3.3% over last year, up from 3% in November but less than economists expected. It rose 0.2% over the previous month, also less than expected. The report lays the groundwork for Wednesday’s heavily anticipated consumer inflation print.
Meanwhile, President-elect Donald Trump’s team is considering a month-by-month rollout of promised tariff increases rather than imposing higher levels in a single move, Bloomberg reported, in a bid to help prevent inflation spikes.
The likelihood that Trump’s policies will pump up price pressures has been worrying markets, as that could limit the Federal Reserve’s scope for cutting interest rates. But gradual tariffs could still be “problematic” for the central bank’s efforts to finish the job of cooling inflation, a UBS strategist said.
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After the tariff report, the dollar (DX-Y.NYB) retreated after a five-day winning streak, while the 10-year Treasury yield (^TNX) pulled back from the 14-month highs tapped in Monday’s bond sell-off.
On the corporate front, shares of KB Home (KBH) jumped over 10% in early trading after the home builder’s fourth quarter earnings beat estimates.
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PPI data ‘positive’ for markets. But inflation risks still loom.
Wholesale prices rose less than expected in December, calming some fears that an inflation resurgence is on the horizon.
“Better than expected PPI in December are going to be positive for the markets which have been concerned with higher inflation readings during the last several months,” Eugenio Aleman, chief economist at Raymond James wrote in reaction to the report.
When excluding volatile food and energy categories, the index showed no increase in producer prices last month — a sign of some relief ahead of Wednesday’s critical consumer inflation report.
“The weakness was broad-based across most components with the exception of energy, where we saw a noticeable increase in gasoline prices last month and some strength in airline pricing,” noted Charlie Ripley, senior investment strategist for Allianz Investment Management.
Energy prices increased by 3.5% month over month, the largest monthly increase since February of 2024. Domestic and international airline prices, meanwhile, edged up by 7.2% month over month. Airlines feed directly into the Fed’s preferred core PCE inflation gauge, set for release later this month.
“We are expecting a wider range of outcomes following tomorrow’s release on the latest consumer price data,” Ripley said.
Consumer prices are expected to remain sticky, with core CPI expected to have risen 3.3% on an annual basis for the fifth straight month. Tariff uncertainty also remains a key question for the rest of the year.
“The proposed increase in tariffs by the incoming administration is adding to inflation concerns,” said Seema Shah, chief global strategist at Principal Asset Management.
“Estimates range from a one-off 0.5% to 1.5% increase in inflation from increased tariffs alone. Of course, central banks typically look through one-off increases from tariffs — unless it leads to a rise in inflation expectations. Notably, since the election, both market-based and survey-based measures of one- and two-year inflation expectations have risen slightly.”
Therefore, “the Fed cannot ignore the upside inflation risks facing the US economy,” in Shah’s view.
“Recent economic strength has combined with a rising threat of tariffs to increase upside inflation risks.”
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Stocks open higher
Stocks are in recovery mode after the latest inflation data showed prices rose less than expected last month, while investors also digested a new report that the Trump administration could hike tariffs more gradually amid the fight to bring down inflation.
The benchmark S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) each moved about 0.4% higher, while the tech-heavy Nasdaq Composite (^IXIC) climbed roughly 0.6%.
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As of 10:22:51 AM EST. Market Open.
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PPI shows wholesale inflation increased less than expected in December
Wholesale prices rose less than expected in December, a positive sign for the economy amid recent market fears that inflation isn’t falling as quickly as hoped to the Federal Reserve’s 2% target.
Tuesday’s report from the Bureau of Labor Statistics showed that its producer price index (PPI) — which tracks the price changes companies see — rose 3.3%% from the year prior, up from the 3% seen in November but below the 3.5% increase economists had projected. On a monthly basis, prices increased 0.2%, below the 0.4% increase economists had expected.
Excluding food and energy, “core” prices increased 3.5% year-over-year, above November’s 3.4% increase. Economists had expected an increase of 3.8%. Meanwhile, month-over-month core prices were unchanged, below the 0.3% increase economist had expected and the 0.2% increase seen last month.
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Good morning. Here’s what’s happening today.
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Goldman Sachs estimates wildfire economic impact
The Goldman Sachs team said in a note this morning that the combined property losses from the Eaton and Palisades fires are on track to top the single most destructive wildfire (the Camp Fire in 2018) in California history.
Insured losses are pegged at $10 billion to $30 billion, Goldman estimates.
Here’s the firm’s estimates on the near-term economic impact:
