US stocks popped on Wednesday after a fresh reading on inflation showed consumer prices increased less than expected in May. The latest snapshot of inflation comes hours before a highly anticipated Federal Reserve meeting in the afternoon will provide the latest signal on the path of interest rates.
The S&P 500 (^GSPC) built on a 27th record close of the year, rising more than 0.8%. The tech-heavy Nasdaq Composite (^IXIC) rose nearly 0.9%, also adding to a record close from the prior day. The Dow Jones Industrial Average (^DJI) also popped about 0.9%.
The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May — a deceleration from April’s 0.3% month-over-month increase and 3.4% annual gain in prices. Both measures beat economist expectations. On a “core” basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.2% over the prior month and 3.4% over last year — cooler than April’s data. Both measures also came in better than economist estimates.
This shifted market expectations for Fed rate cuts this year. Following the data’s release, markets were pricing in a roughly 69% chance the Federal Reserve begins to cut rates by its September meeting, according to data from the CME FedWatch Tool. That’s up from about a 53% chance the day prior.
Subsequently, interest rate-sensitive areas of the market soared. Real Estate (XLRE) led the eleven sectors, rising more than 2%.
Read more: How does the labor market affect inflation?
But all that could shift later this afternoon. The Fed’s decision is all but certain — the central bank is expected to keep rates at their current 23-year-high levels. Investors will be more closely watching the release of the Fed’s updated economic projections in its “dot plot” — specifically, how many rate cuts it projects for the rest of the year.
Last we heard, in March, it was three. Policymakers are almost certain to slash that, thanks in part to the aforementioned inflation’s stickiness to start this year. Those projections, along with what Fed Chair Jerome Powell says in his press conference, could be the last market-moving events in an extraordinarily busy day.
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Nvidia as the sun…
A tip of the hat to Apollo chief economist Torsten Slok for this vibe check on the S&P 500.
Clearly, Nvidia (NVDA) is the sun that 499 other companies revolve around.
Note: Apollo is the parent company of Yahoo Finance.
It’s an Nvidia market. (Apollo) -
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