(Bloomberg) — A rally in shares of some of the world’s biggest technology companies spurred a stock market rebound in a volatile session as traders digested faster-than-expected inflation data.
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The S&P 500 pared losses after falling more than 1.5% earlier in the day. The Nasdaq 100 rose 1%. Nvidia Corp rose 6.3%, leading gains among chipmakers. Financials, energy and industrials remained under pressure. Treasury yields rose slightly amid bets the Federal Reserve will gradually move to cut interest rates. Swap traders expect the Fed to cut rates by 25 basis points at its meeting next week and see little chance of a half-point cut.
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“While we have seen a slight pullback in stocks recently on volatile earnings and economic data, we expect more smooth sailing after this initial Fed rate cut and post-election as uncertainty fades and investors begin to price in 2025 earnings,” said Skyler Weinand of Regan Capital.
While stocks rebounded, sentiment remained “cautious,” according to Fawad Razakzada at City Index and Forex.com.
“Concerns about a weak global economy have dragged stocks lower this month. There is also the added risk of a presidential election. Investors seem reluctant to chase the gains and we could see the recovery falter again later in the week,” he noted.
The S&P 500 index topped 5,500. The Dow Jones Industrial Average fell 0.3%. The Russell 2000 index of small companies was little changed. The KBW Bank Index fell 1.1%.
The yield on 10-year U.S. Treasury bonds rose 2 basis points to 3.66%. The dollar fell. Oil prices rose as Hurricane Francine swept through key oil-producing areas in the U.S. Gulf of Mexico, prompting traders to cover their bearish bets.
The so-called core consumer price index — which strips out food and energy costs — rose 0.3% from July, the highest in four months, and 3.2% from a year ago, the Bureau of Labor Statistics said Wednesday. The three-month annual rate rose 2.1%, up from 1.6% in July, according to Bloomberg calculations.
“Stronger-than-expected core inflation data will make it harder for Jerome Powell to deliver a 50bp cut in September,” said Krishna Guha of Evercore. “We still think a 50bp cut initially is the right call and may win now. But the odds have moved against it, and the risks to markets and a soft landing are higher as a result.”
Guha noted that if the Fed does not cut interest rates by 50 basis points next week, it will likely do so in November.
The inflation report has long been the most important figure in the market, but lately it has been overshadowed by concerns about a slowing labor market and recession fears, according to eToro’s Jakob West-Christensen.
“Going forward, the risks are clearly toward slower growth and a deteriorating labor market, which is why four 25bp rate cuts are still expected with only three meetings left in the year,” said Chris Zaccarelli of Independent Advisors Alliance. “If the economy continues to slow — and doesn’t slide into a sudden recession — the Fed will be able to cut rates at a measured pace of 25bp per meeting.”
For TradeStation’s David Russell, while the latest inflation numbers aren’t “wildly dovish,” they do confirm that the easing process is still in effect. He noted that attention may now shift from the Fed as a catalyst toward earnings and the election cycle.
“This is not the CPI report the market wanted to see,” said Seema Shah of Principal Asset Management. “The number is certainly not a hurdle for policy action next week, but hawks on the committee are likely to seize on today’s CPI report as evidence that the last mile of inflation needs to be handled carefully and cautiously.”
Main events this week:
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Japan Producer Price Index, Thursday
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ECB interest rate decision, Thursday
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US Initial Jobless Claims, Producer Price Index, Thursday
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Eurozone Industrial Production, Friday
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Japan Industrial Production, Friday
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University of Michigan Consumer Confidence Index, Friday
Some key movements in the markets:
Stocks
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The S&P 500 was up 0.2% as of 2:07 p.m. ET in New York.
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The Nasdaq 100 rose 1%.
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The Dow Jones Industrial Average fell 0.3%.
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MSCI World Index rose 0.2%
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The Bloomberg Magnificent 7 Total Return Index rose 1.3%.
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The Russell 2000 Index was little changed.
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The KBW Bank Index fell 1.1%.
Currencies
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The Bloomberg Dollar Index fell 0.1%.
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The euro remained unchanged at $1.1020.
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The pound fell 0.3% to $1.3047.
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The Japanese yen rose 0.2% to 142.13 yen per dollar.
Cryptocurrencies
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Bitcoin rose 0.3% to $57,761.88
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Ether fell 0.8% to $2,358.69.
Bonds
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The yield on the 10-year US Treasury note rose two basis points to 3.66%.
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The yield on the German 10-year bond fell by two basis points to 2.11%.
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The yield on the 10-year British bond fell six basis points to 3.76%.
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This story was produced with the help of Bloomberg Automation.
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