4.05pm: Wall Street optimism persists
Both the S&P 500 and the Nasdaq hit 2023 highs on Wendesday as investor sentiment was lifted by a positive CPI read, showing inflation coming in lower than expected.
At the close, the S&P 500 was at 4,472 points (up 33 points or 0.7%), the Nasdaq reached 13,919 points (up 158 or 1.2%) and the Dow at 34,347 points (up 86 or 0.3%).
"Today’s gains have been led by US banks, with the smaller ones seeing a particular benefit on relief that rates probably won’t be going much higher, with the likes of Zions and Comerica, leading the way," CMC's Michael Hewson noted.
"Whether that exuberance will last as we look ahead to the start of bank earnings season on Friday remains to be seen."
12:05pm: Stock lifted by softer June CPI data
US stocks were higher in noon trading after the consumer price index (CPI) rose 3% on year-over-year in June, less than the 3.1% expected by economists polled by Dow Jones.
At midday, the Dow gained 148 points to 34,410, while the S&P 500 added 26 points at 4,466 and the tech-heavy Nasdaq rose 100 points to 13,861.
“I think it’s a good report. Inflation is going the way that the Federal Reserve wants it to go. But I don’t think we’re ready to say that they’re going to be able to cut rates,” Verdence Capital Advisors chief investment officer Megan Horneman said.
Notable movers included shares of Domino's Pizza Inc, which jumped 11% after the pizza chain announced that customers can order its products through Uber's Uber Eats and Postmates apps, in an effort to increase sales as its delivery business slows.
9:40am: Stocks rise on cooling inflation
US stocks moved higher at the open as the latest CPI reading showed inflation continues to cool spurring hopes that the end of the Fed’s rate-hiking cycle is in sight.
The CPI reading will not dissuade the Fed from increasing rates at the next meeting, but it may bring forward the terminal rate discussion and price out a second rate hike later this year, according to Titan Asset Management chief investment officer John Leiper.
“Given the economic data continues to hold up, this will boost risk sentiment and we are seeing that in the market reaction with the two-year US Treasury yield and the US dollar down, and a pick-up in equities,” Leiper said.
Evelyn Partners chief investment strategist Daniel Casali added: “Regardless of whether the FOMC (the US Central Bank’s interest-rate setting body) raises interest rates later this week or not (markets’ expectation is current for a 25bps increase), the Fed is likely coming to the end of its interest rate hiking cycle.”
Just after the opening bell, the Nasdaq had added 157 points or 1.1% at 13,917 points, the S&P 500 was up 36 points or 0.9% at 4,478 points, and the Dow Jones had gained 263 points or 0.8% at 34,525 points.
8:40am: Inflation continues to cool
Inflation rose at the slowest pace in more than two years in June, according to new data from the US Bureau of Labor Statistics.
Headline CPI rose 3% in the 12 months ended in June—down from 4% in May, below the expected 3.1% gain and marking the smallest annual increase since March 2021.
It rose 0.2% month-over-month, up from a 0.1% gain in May.
Core inflation, which removes the more volatile food and energy components, also softened more than expected during June.
Core CPI came in at 4.8% for the 12 months that ended in June, below the expected 5%.
It rose 0.2% month-over-month in June, the smallest one-month gain in that reading since August 2021.
“Cold as ice—that is the number that comes to mind when you look at the US CPI data,” commented Zaye Capital Markets chief investment officer Naeem Aslam.
“This is the lowest number since the pandemic, and this is certainly good news for the economy, but it is important to keep in mind that this is still a transitory situation.”
Aslam concluded: “Overall, we think this is the best news for the markets so far this year when it comes to the US CPI data.”
Just after the inflation report was released, futures for the Nasdaq had added 0.8%, the S&P 500 had added 0.6%, and the Dow Jones had added 0.4% in pre-market trading.
7:45am: CPI to dictate market mood
US stocks are expected to open higher on Wednesday, though much will depend on the June consumer price index, due at 8.30am ET, the first of this week's duo of inflation numbers, with the producer price index due on Thursday.
Economists are forecasting that June CPI will rise by 0.3% month-on-month and 3.1% on an annualized basis, down from 4.0% in May. Excluding volatile food and energy prices, core CPI is expected to increase by 0.3% month-on-month and 5.0% on the year.
TickMill Group’s market analyst Patrick Munnelly commented: "While a further 0.25% hike from the Fed is widely expected as the base case scenario for the July FOMC, expectations have shifted beyond this month. With a less dovish outlook voiced by some Fed members recently and with jobs data cooling, the market is anticipating that the Fed will likely return to a pause after this next hike.
"With that in mind, today’s inflation reading will be used as a key barometer for assessing this likelihood. If CPI is seen falling further, this should reinforce the view that the Fed will pause after hiking in July".
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were 0.2% higher, while those for the S&P 500 index were up 0.3%and the Nasdaq 100 added 0.4%.
Stocks finished higher on Tuesday, with the DJIA closing 317 points, or 0.9% firmer at 34,261, while the S&P 500 and Nasdaq Composite added 0.7% and 0.6%, respectively.
Aside from the consumer inflation report, investors will also monitor comments on Wednesday from Federal Reserve officials including Richmond Fed President Tom Barkin, Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester for any insights into the state of the US economy and the future for interest rate policy.