[New York Stock Market] Rising on hopes of inflation peak as "PPI also slows"... Nasdaq up 1.45%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed higher on the 15th (local time) as additional data indicated a slowdown in inflation. Strong earnings from retail companies including Walmart also eased recession concerns, boosting investor sentiment. However, gains narrowed in the afternoon following reports of a missile, presumed to be launched by Russia, falling in Poland.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,592.92, up 56.22 points (0.17%) from the previous session. The S&P 500, focused on large-cap stocks, rose 34.48 points (0.87%) to 3,991.73, while the tech-heavy Nasdaq index gained 162.19 points (1.45%) to close at 11,358.41.

By sector, retail stocks performed well. Walmart posted better-than-expected third-quarter earnings and raised its annual outlook, closing up 6.54% from the previous session. Home Depot, which also reported earnings exceeding expectations, rose 1.63%. With retail earnings easing recession fears, retail giants Target, Kohl's, and Macy's jumped 3.95%, 1.97%, and 4.48%, respectively. Discount stores such as Dollar General (+4.18%) and Costco (3.29%) also rallied.

Following the U.S.-China summit where leaders signaled some potential areas of cooperation, China-related stocks showed strength, with Tencent Music surging over 30%. Chinese private education companies Gaotu Techedu and TAL Education Group rose 26.01% and 8.30%, respectively, while Alibaba gained 11.17%. Additionally, TSMC, Paramount Global, and Louisiana-Pacific closed up 10.52%, 5.14%, and 7.84%, respectively, after news that Warren Buffett's Berkshire Hathaway increased its stakes.

Investors monitored the October Producer Price Index (PPI), retail earnings, the U.S.-China summit, the Ukraine war, and other global issues released that morning to gauge the future economic outlook.

According to the U.S. Department of Labor, the October PPI rose 8.0% year-over-year, marking the fourth consecutive month of deceleration. Month-over-month, the PPI increased by only 0.2%, falling short of market expectations of 0.4%. The wholesale price PPI is generally considered a leading indicator of inflation. Following the previously confirmed slowdown in the Consumer Price Index (CPI), the clear deceleration in PPI further supports the theory that inflation has peaked. President Joe Biden, in a statement immediately after the PPI release, called it "another good news for our economy" and emphasized it as "another indicator that inflation easing has begun."

The inflation slowdown could allow the Federal Reserve (Fed), the central bank, to ease its aggressive tightening. Mike Lowengart of Morgan Stanley Global Investment Office said, "The PPI adds more confidence to those who believe we have finally entered a downward trend in inflation." Jeremy Siegel, professor at the University of Pennsylvania's Wharton School, stated, "It pushes the Fed pivot (policy shift) forward," adding, "What we need is actual prices on the ground, recognizing that prices are not rising."

Following the PPI release, U.S. Treasury yields fell in the New York bond market. The 10-year Treasury yield briefly dropped to 3.75% during the session before recovering to around 3.77%. The 2-year yield, sensitive to monetary policy, fell to about 4.345%.

The market expects the Fed to slow the pace of rate hikes at the FOMC meeting scheduled for December 13-14, raising rates by 0.5 percentage points instead of 0.75. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) rate market currently prices in an 85.4% probability of a "big step" (0.5 percentage point hike) by the Fed in December. This is up from 56.8% on the 8th before the CPI release and 80.6% the previous day. Conversely, the probability of a "giant step" (0.75 percentage point hike) has dropped from 43.2% a week ago and 19.4% the previous day to 14.6% on the day.

However, opinions diverge regarding the Fed's pivot. Daniel Berkowitz, Chief Investment Officer at Pruant Management Associates, views it as a trend rather than a simple signal and cautions, "The market seems to be getting ahead of itself." Moss Mayfield, investment strategy analyst at Baid, emphasized that the Fed's criteria for a policy shift remain high. Fed Vice Chair Lael Brainard also supported slowing the pace of rate hikes soon but confirmed that the Fed's tightening is not over.

Economic indicators showed strength. The Empire State Manufacturing Index for November, released by the Federal Reserve Bank of New York, rose 13.6 points from the previous month to 4.5, returning to expansion territory after four months. This far exceeded market expectations of -6.0. The index indicates contraction or expansion based on zero. Strong earnings from retail distributors like Walmart and Home Depot also eased recession concerns.

According to a Charles Schwab survey, traders believe the U.S. economy is currently in or near a recession but expect it to be short-lived. Fifty-five percent of respondents predicted the recession would last less than a year. They also expressed optimism centered on sectors such as energy, healthcare, and utilities.

Additionally, investors are watching cryptocurrency instability triggered by FTX's liquidity crisis. Local media cited court filings reporting that FTX's creditors may number over one million, ten times the previously known figure. FTX filed for bankruptcy protection under Chapter 11 in Delaware court on the 11th.

International oil prices rose. On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil closed at $86.92 per barrel, up $1.05 (1.22%) from the previous session.

This was due to increased geopolitical risks after a Russian missile headed toward Poland caused two deaths. On the same day, the International Energy Agency (IEA) warned in a report that Western sanctions on Russian oil exports could reduce Russia's oil exports by more than one million barrels per day. The IEA expects demand to increase amid supply concerns.

This content was produced with the assistance of AI translation services.