[New York Stock Market] Rise on Consumer Price Slowdown... Nasdaq Rally for 5 Consecutive Trading Days

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market rose together on the 12th (local time) as the Consumer Price Index (CPI) increase released was in line with expectations and showed a slowdown. The CPI inflation rate, which had surged to the 9% range last year, slowed to the 6% range, reinforcing the possibility of further pace adjustments by the central bank, the Federal Reserve (Fed). However, as interest rate hikes are still expected to continue, the stock price gains were limited.

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On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,189.97, up 216.96 points (0.64%) from the previous session. The S&P 500 index, centered on large-cap stocks, rose 13.56 points (0.34%) to 3,983.17, and the Nasdaq index closed at 11,001.11, up 69.43 points (0.64%).

The Nasdaq index, which is sensitive to interest rates and focused on technology stocks, closed higher for five consecutive trading days for the first time since July last year. However, none of the three major indices rose more than 1%. Sandy Bragger, Chief Customer Officer at Aspiriant, said, "The market was pleased with the CPI report but did not get overly excited." Some also evaluated that the slowdown in CPI inflation had already been priced into the market.

Among the 11 sectors of the S&P 500, eight sectors excluding utilities, healthcare, and two others rose together. The rally in energy and real estate stocks was particularly prominent. Representative energy stocks ExxonMobil rose 1.66%, and Occidental Petroleum increased 2.57% from the previous session.

The representative meme stock Bed Bath & Beyond soared more than 50% on the day amid expectations of a 'short squeeze' from short positions. A short squeeze refers to a situation where investors who short-sold stocks expecting a price decline buy back the stocks to cover or prevent losses when the stock price rises. The stock price of used car platform Carvana, which plunged last year, also jumped 46%. American Airlines rose 9.71% on news of an upward revision of its fourth-quarter earnings forecast.

Investors collectively breathed a sigh of relief as the U.S. December CPI showed a decline compared to the previous month and a reduced increase compared to the previous year. According to the U.S. Department of Labor, the December CPI rose 6.5% year-over-year. This marked the fifth consecutive month of a reduced increase. It was the smallest increase in 14 months since October 2021. The CPI inflation rate, which had surged to 9.1% in June last year, slowed to 7.7% in October and further dropped to the 6% range.

In particular, the December CPI fell 0.1% compared to the previous month. This was the first time since May 2020, right after the COVID-19 outbreak, that the CPI showed a month-over-month decrease. The core CPI, excluding volatile energy and food prices, rose 5.7% year-over-year and 0.3% month-over-month.

These inflation indicators eased concerns about aggressive tightening by the Fed. There are growing expectations that the Fed may reduce the size of the rate hike to 0.25 percentage points at the upcoming Federal Open Market Committee (FOMC) regular meeting in February. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected more than a 96% probability of a 0.25 percentage point increase (a baby step) in February. This is higher than the 62% level a week ago and 76% the day before. The possibility of a 0.5 percentage point increase (a big step) fell below 4%.

Morgan Stanley said, "The December CPI will encourage the Fed to slow the pace of rate hikes at the February FOMC meeting," maintaining its forecast for a baby step in February. Mark Zandi, Chief Economist at Moody's, said, "A 6.5% increase is still very high," but added, "Inflation is slowing rapidly."

On the same day, Patrick Harker, President of the Philadelphia Federal Reserve Bank, attending an event, said that interest rates are expected to be raised several more times this year but "0.25 percentage points will be appropriate going forward." He emphasized that the December CPI data shows inflation is coming down and that if inflation is moving in the right direction, the Fed would not need to overreact with monetary policy.

In the New York bond market, Treasury yields fell as the easing trend in CPI, which met expectations, was absorbed. The yield on the 10-year U.S. Treasury note slipped to around 3.42%. The 2-year yield, sensitive to monetary policy, dropped to 4.13%.

The dollar also weakened. The dollar index, which shows the value of the dollar against six major currencies, moved around 102, down more than 0.9% from the previous session.

However, the market expressed concerns that, despite the overall easing of inflationary pressure, service prices are rising rapidly. Tim Graff of State Street Global Markets pointed out, "Overall indicator numbers look good, but housing and service-related inflation remain sticky," adding, "Inflation may not come down as quickly as the Fed wants."

The employment data released that day also supported a solid labor market, consistent with recent indicators. The U.S. Department of Labor reported that initial jobless claims for the week of January 1-7 were 205,000, down 1,000 from the previous week. This was the lowest level in 15 weeks.

The Fed is currently most wary of an overheated labor market where demand exceeds supply, driving wage increases and potentially prolonging high inflation. Recent remarks by Fed Chair Jerome Powell have consistently reflected caution regarding service prices and wage growth.

Since the CPI matched expectations, there is speculation that investors will now focus on speeches by Fed officials for hints about the Fed's future moves. On the 14th of next month, Boston Fed President Susan Collins, Minneapolis Fed President Neel Kashkari, and Philadelphia Fed President Patrick Harker are scheduled to speak. Collins previously supported a 0.25 percentage point increase in February.

Also on the 14th, major banks including JP Morgan, Bank of America (BoA), Citigroup, and Wells Fargo are set to release their quarterly earnings. Delta Air Lines is also awaiting its earnings announcement.

Peter Boockvar, Chief Investment Officer (CIO) at Bleakley Financial, said, "It matched exactly. Everyone expected weak inflation numbers, so the S&P 500 rose, and that was as expected. It changes nothing." He added, "Now, what people need to focus on is whether inflation will 'stay higher for longer.'"

Oil prices rose on the news of the CPI inflation slowdown and the weakening dollar. On the New York Mercantile Exchange, the February West Texas Intermediate (WTI) crude oil price closed at $78.39 per barrel, up 98 cents (1.27%) from the previous session. This marked six consecutive trading days of gains.

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