Wall Street Sends Big Tech to Fresh Highs Post-CPI: Markets Wrap

(Bloomberg) — Investors’ enthusiasm for US technology giants sent stocks higher Wednesday, snapping a two-day slide after a benign inflation report cemented expectations that the Federal Reserve will keep cutting interest rates. Treasuries ended the day lower.

The Nasdaq 100 climbed 1.9% to a record while the S&P 500 rose 0.8%, nearing a recent peak. Broadcom Inc. led the advance following a report that the chipmaker was working on an AI deal with Apple Inc. The so-called Magnificent Seven were once again in the pole position, with shares of Tesla Inc., Amazon.com Inc. and Facebook-parent Meta Platforms Inc., setting all-time highs. Wall Street’s optimism proved enduring even as inflation remains stubbornly above the central bank’s target.

The consumer price index rose 0.3% in November for the fourth-straight month, while core CPI, which excludes volatile food and energy costs, rose by the same amount, Bureau of Labor Statistics figures showed Wednesday. The core gauge — economists’ preferred number — was up 3.3% from a year before, inline with estimates.

To Skyler Weinand, chief investment officer at Regan Capital, the report “gives the Federal Reserve the green light for a 25 basis point rate cut at the December meeting, as it helps to confirm that we are still making progress on inflation even though it remains sticky.”

Swaps traders are betting on a quarter-point interest rate cut at the Fed’s policy meeting next week. But whether the Fed will execute more than three similarly sized cuts over the next 12 months remains a key question amid concerns that President-elect Donald Trump’s policies could further spark inflation.

Treasuries failed to hold an initial gain after the data with the yield on the benchmark 10-year rising to 4.27%. 

“Next week’s Fed cut will be accompanied by an update to the SEP that will offer clarity on the current stance of the Committee regarding further cuts in the year ahead,” Ian Lyngen at BMO Capital Markets wrote. “We’re sticking with our view that a pause in January to assess Trump’s initial few weeks in the White House will prove the path of least resistance.”

Lyngen expects Thursday’s producer prices, barring any surprises, should help solidify estimates around the Fed’s favored inflation gauge, personal consumption expenditures. The final PCE readout of the year is expected next Friday.

Wall Street’s fear gauge, the Vix, fell below 14 following the report, an indication the market is expecting calm in the near-term. Stocks and long bonds stand to benefit as fears of a higher inflation print evaporate, according to ClearBridge Investments’ Jeff Schulze.

“The debate for the FOMC next week between cut or skip is over,” Schulze said. “This inflation print should be risk-asset friendly and provide a tailwind to equity markets as we move through one of the strongest seasonal periods of the year.”

The dollar rallied after a report that Chinese leaders are considering allowing their currency to weaken as they brace for higher tariffs under a second Trump presidency.

The Canadian dollar advanced after touching a four and a half-year low once policymakers signaled they were ready to slow down on monetary easing. The Bank of Canada lowered its rate by half a percentage Wednesday, its second straight outsized cut. 

Other central banks are also expected to lower rates, and in some cases cut faster and deeper than the Fed. The European Central Bank and Swiss National Bank are likely to follow suit Thursday. Meanwhile, China’s two-day Central Economic Work Conference is expected to map out policies for next year, following stimulus signals from top leaders. 

In commodities, crude futures rose after a Bloomberg News report that the Biden administration is considering new sanctions on Russia’s oil trade, a move that could tighten the market. The White House warned that Russia may fire another intermediate-range ballistic missile at Ukraine, after what Moscow said were strikes on its territory with US-supplied weapons. 

Corporate Highlights:

• Apple Inc. is developing a server chip designed especially for artificial intelligence and is working with Broadcom on the chip’s networking technology, the Information reported, citing a person with direct knowledge of the project.
• UnitedHealth Group Inc. and CVS Health Corp. were among health-care companies under pressure after Bloomberg reported a bipartisan coalition of US lawmakers has drafted legislation that would force prescription drug middlemen to divest pharmacies they own.
• Hershey Co.’s main owner has rejected a preliminary takeover offer from Mondelez International Inc., people familiar with the matter said, potentially ending a fresh pursuit that would’ve created a food giant with combined sales of almost $50 billion.
• GameStop Corp. shares rose 7.6% after the videogame retailer reported a surprise third-quarter profit as the company’s cost cutting measures pay dividends.
• Walgreens Boots Alliance Inc. shares fell 5.6% as analysts questioned the probability of Sycamore Partners acquiring the pharmacy chain. On Tuesday, the stock jumped 18% after a report the two sides were in talks over a potential sale.
• PJT Partners Inc.’s chief executive officer said next year could be the second-biggest for mergers and acquisitions in a decade, and his firm has been on an “aggressive” hiring spree to prepare.

Key events this week:

• ECB rate decision, Thursday
• US initial jobless claims, PPI, Thursday
• Eurozone industrial production, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8% as of 4:01 p.m. New York time
• The Nasdaq 100 rose 1.9%
• The Dow Jones Industrial Average fell 0.2%
• The MSCI World Index rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.0495
• The British pound fell 0.2% to $1.2749
• The Japanese yen fell 0.4% to 152.58 per dollar
• The Canadian dollar rose 0.1% to 1.4162

Cryptocurrencies

• Bitcoin rose 4.5% to $101,318.11
• Ether rose 5.3% to $3,833.31

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.27%
• Germany’s 10-year yield was little changed at 2.13%
• Britain’s 10-year yield was little changed at 4.32%

Commodities

• West Texas Intermediate crude rose 2.5% to $70.30 a barrel
• Spot gold rose 0.8% to $2,716.89 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao, Margaryta Kirakosian, Robert Brand and John Viljoen.

©2024 Bloomberg L.P.