[New York Stock Market] CPI Slowdown and Interest Rate Hold Expectations Drive Broad Gains... Tesla's 13th Consecutive Rally

The three major indices of the U.S. New York stock market all closed higher on the 13th (local time) as the consumer price index (CPI) inflation rate released that day recorded its lowest level in 2 years and 2 months. This was due to strengthened expectations that the Federal Open Market Committee (FOMC) would keep interest rates unchanged at its regular meeting in June. The S&P 500 index, centered on large-cap stocks, and the Nasdaq index, focused on tech stocks, both hit their highest levels in 13 months. Tesla continued its longest-ever rally with 13 consecutive trading days, and Nvidia surpassed a market capitalization of $1 trillion.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,212.12, up 145.79 points (0.43%) from the previous session. The S&P 500 index rose 30.08 points (0.69%) to 4,369.01, and the Nasdaq index gained 111.40 points (0.83%) to close at 13,573.32.

All 10 sectors of the S&P 500, except for utilities, rose. Tesla’s stock price increased by more than 3.55% again, continuing its 13-day rally. The upward momentum remains strong as Tesla’s Supercharger network is increasingly likely to become the standard for automakers like Ford. Toyota, listed in the U.S., jumped nearly 6% after unveiling its next-generation EV in Tokyo. Other leading electric vehicle stocks such as Rivian (+8.93%), Nio (+5.83%), and Lucid (+4.47%) also showed broad gains.

Nvidia rose 3.9% on AI optimism, surpassing a $1 trillion market cap based on closing price. GameStop surged nearly 11% after Chairman Ryan Cohen purchased shares. Urban Outfitters rose more than 3% after Morgan Stanley upgraded its investment rating due to increased weighting. Conversely, Apple, which hit an all-time closing high, showed slight weakness after UBS downgraded its rating late the previous day citing pressure on iPhone demand. Bloomberg reported that following UBS’s downgrade, its own data analysis shows that buy ratings on Apple have dropped to 67%, the lowest level since the end of 2020.

[Image source=Reuters Yonhap News]

Investors closely watched the CPI released before the market opened and the FOMC results to be announced the following afternoon. According to the U.S. Department of Labor, the May CPI rose 4.0% year-over-year, matching Wall Street expectations. This is not only lower than April’s increase of 4.9% but also the smallest rise in 2 years and 2 months since March 2021. The May CPI rose only 0.1% month-over-month, confirming a slowdown in inflationary pressures. The core CPI, which excludes volatile energy and food prices, rose 5.3% year-over-year and 0.4% month-over-month. Although the easing trend is slower compared to the headline CPI, it is still in line with Wall Street forecasts. U.S. President Joe Biden called it "good news" in a statement, saying it "shows continued progress in tackling inflation while maintaining historically low unemployment."

After the CPI release, market expectations that the Fed, which has raised rates 10 consecutive times since March last year, would hold rates steady the next day strengthened further. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in nearly a 92% chance of a rate hold this month, up from about 79% the previous day. Immediately after the CPI release that morning, this probability even reached 96%. Shima Shah, Global Chief Strategist at Principal Asset Management, said, "For the Fed to raise rates in June, there would have needed to be a significant surprise rebound in inflation. With CPI in line with expectations, that pressure has disappeared." Bill Adams, Chief Economist at Comerica Bank, predicted, "The Fed will hold off on a rate hike tomorrow."

Market consensus had increasingly expected the Fed to skip the June rate decision while signaling a possible hike as early as July, a so-called ‘hawkish skip.’ The 1-year inflation expectations from the New York Federal Reserve (4.1%) released the previous day also fell to their lowest level in about two years, supporting this outlook. Officials’ comments about pausing rate hikes to assess the cumulative tightening effects, combined with the inflation data, reinforced this view. Following the CPI, the Producer Price Index (PPI) for May, a wholesale inflation gauge, will be released the next morning.

Gargi Chaudhuri, Head of Investment Strategy America at iShares, told CNBC, "Since the start of the tightening cycle, the Fed has raised rates to 5%, and it will likely ‘skip’ rather than ‘pause’ to observe the cumulative effects. By signaling at least one more hike by the end of 2023, the Fed aims to keep its options open," supporting the ‘hawkish skip’ scenario.

However, concerns about persistent inflationary pressures remain. Experts continue to point to still-high core CPI and an overheated labor market, emphasizing that the Fed’s tightening is not over. Brian Coulton, Chief Economist at Fitch, warned, "Don’t be fooled by the sharp drop in headline CPI driven by falling gasoline prices. Core CPI still shows stubbornly high inflationary pressures." Earlier, the central banks of Australia and Canada surprised markets by raising rates despite expectations of a hold.

Investors are also focused on the FOMC press conference by Chair Jerome Powell, the dot plot, and revised economic forecasts following the rate decision the next day. These will be key to gauging the future direction of monetary policy. In particular, how much the year-end rate projections in the dot plot will be raised compared to previous forecasts is a critical point.

In the New York bond market, Treasury yields fluctuated but are currently trending higher. The 10-year U.S. Treasury yield is around 3.82%, and the 2-year Treasury yield, which is sensitive to monetary policy, is near 4.67%. The dollar index, which measures the dollar’s value against six major currencies, fell more than 0.3% to around 103.3. The volatility index (VIX), known as Wall Street’s fear gauge, stood at 14.6, below its long-term average of 20.

Oil prices rebounded after four trading days, supported by China’s rate cuts and a weaker dollar. On the New York Mercantile Exchange, July delivery West Texas Intermediate (WTI) crude closed at $69.42 per barrel, up $2.30 (3.43%) from the previous day.

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