Stocks surged after CPI, with Fed looming

9jahitbase.com June 12, 2024

0 7 6 minutes read

US stocks roared on Wednesday after a fresh reading on inflation showed consumer prices increased less than expected in May. The latest snapshot of inflation comes hours before a highly anticipated Federal Reserve meeting in the afternoon will provide the latest signal on the path of interest rates.

The S&P 500 (^GSPC) built on a 27th record close of the year, rising more than 1.2%. The tech-heavy Nasdaq Composite (^IXIC) rose nearly 1.8%, also adding to a record close from the prior day. The Dow Jones Industrial Average (^DJI) also popped about 0.5%.

The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May — a deceleration from April’s 0.3% month-over-month increase and 3.4% annual gain in prices. Both measures beat economist expectations. On a “core” basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.2% over the prior month and 3.4% over last year — cooler than April’s data. Both measures also came in better than economist estimates.

This shifted market expectations for Fed rate cuts this year. Following the data’s release, markets were pricing in a roughly 69% chance the Federal Reserve begins to cut rates by its September meeting, according to data from the CME FedWatch Tool. That’s up from about a 53% chance the day prior.

The 10-Year Treasury yield (^TNX) fell about 14 basis points to 4.26%, its lowest level since April 1. Subsequently, interest rate-sensitive areas of the market soared. The small-cap Russell 2000 (^RUT) index rallied more than 3.1%.

But all that could shift later this afternoon. The Fed’s decision is all but certain — the central bank is expected to keep rates at their current 23-year-high levels. Investors will be more closely watching the release of the Fed’s updated economic projections in its “dot plot” — specifically, how many rate cuts it projects for the rest of the year.

Last we heard, in March, it was three. Policymakers are almost certain to slash that, thanks in part to the aforementioned inflation’s stickiness to start this year. Those projections, along with what Fed Chair Jerome Powell says in his press conference, could be the last market-moving events in an extraordinarily busy day.

Live8 updates

Wed, June 12, 2024 at 5:00 PM GMT+2

The positive read-through from May CPI

Consumer price increases cooled more-than-expected during the month of May.

That data from the Bureau of Labor Statistics has economists feeling better about another inflation measure, Personal Consumption Expenditures, which is the Fed’s preferred inflation gauge and is due out at the end of June.

Morgan Stanley chief economist Ellen Zentner reasoned that Wednesday’s CPI data imply core PCE, which excludes the volatile food and energy categories, increased 0.12% in May.

Zentner notes this would be the slowest core PCE increase of 2024 and “the second consecutive reading adding to the convincing evidence the Fed needs to start cutting in soon.”

“We expect more deceleration ahead, especially in [second half of 2024], and we maintain our call for a first cut in September this year, followed by cuts at every meeting through mid-2025,” Zentner said.
Wed, June 12, 2024 at 4:10 PM GMT+2

Apple reclaims spot as largest stock in the world

Apple’s (AAPL) stock gained nearly 4% on Wednesday morning, extending gains from its best single-day move in a year on Tuesday.

The move catapulted the iPhone maker’s market cap higher than Microsoft’s (MSFT), making it the largest stock in the world. Apple’s market cap eclipsed $3.3 trillion on Wednesday, moving higher than Microsoft’s market cap of $3.25 trillion.

Apple stock has rallied as investors digested the announcement of its AI platform, Apple Intelligence, which some Wall Street analysts have cheered as potential catalyst to spark the next upgrade cycle for iPhone.

Below is a look at the market caps, in trillions, of the largest stocks in US markets.

Source: Yahoo Finance
Wed, June 12, 2024 at 3:32 PM GMT+2

Stocks rise at the open as yields fall

US stocks popped on Wednesday after a fresh reading on inflation showed consumer prices increased less than expected in May. The latest snapshot of inflation comes hours before a highly anticipated Federal Reserve meeting in the afternoon will provide the latest signal on the path of interest rates.

The S&P 500 (^GSPC) built on a 27th record close of the year, rising more than 0.8%. The tech-heavy Nasdaq Composite (^IXIC) rose nearly 0.9%, also adding to a record close from the prior day. The Dow Jones Industrial Average (^DJI) also popped about 0.9%.

The 10-year Treasury yield (^TNX) fell about 10 basis points to 4.3%.
Wed, June 12, 2024 at 2:54 PM GMT+2

It’s risk on in markets after the CPI print

Stock futures shot higher after the cooler-than-expected reading on consumer prices for the month of May.

S&P 500 futures (ES=F) built on a 27th record close of the year, rising 0.7%. Futures on the tech-heavy Nasdaq 100 (NQ=F) rose nearly 0.9%, also pointing to gains after a record close for the index. Dow Jones Industrial Average futures (YM=F) gained 0.6%.

Notably, interest rate-sensitive areas of the market saw the biggest gains. Futures tied to the Russell 2000 (RT=F) were up about 2.3%.

This came as investors quickly recalibrated their expectations for rate cuts this year. Following the data’s release, markets were pricing in a roughly 69% chance the Federal Reserve begins to cut rates by its September meeting, according to data from the CME FedWatch Tool. That’s up from about a 53% chance the day prior.
Wed, June 12, 2024 at 2:32 PM GMT+2

Inflation pressures ease more than expected

US consumer price increases cooled during the month of May, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.

The Consumer Price Index (CPI) was flat over the previous month and 3.3% over the prior year in May, a deceleration from April’s 3.4%, and lower than the 3.4% year-over-year change economists had expected.

May’s monthly increase came in lower than economist forecasts of a 0.1% uptick.

On a “core” basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.2% over the prior month and 3.4% over last year — cooler than April’s data. Both measures were lower than economist expectations.
Wed, June 12, 2024 at 1:24 PM GMT+2

Nvidia as the sun…

A tip of the hat to Apollo chief economist Torsten Slok for this vibe check on the S&P 500.

Clearly, Nvidia (NVDA) is the sun that 499 other companies revolve around.

Note: Apollo is the parent company of Yahoo Finance.

It’s an Nvidia market. (Apollo)
Wed, June 12, 2024 at 12:35 PM GMT+2

JP Morgan weighs in on the Musk pay package vote

The Tesla (TSLA) shareholder vote on Elon Musk’s $56 billion pay package is coming down to the wire.

Ahead of the vote on Thursday, Tesla just dropped this post on Musk owned X detailing its CEO’s accomplishments (note this is weird to see from a corporate X account, but hey, this is Musk we are talking about here).

A new Yahoo Finance poll is currently showing 96% of the people that have voted think Musk’s pay package shouldn’t be approved.

Meantime, JP Morgan analyst Ryan Brinkman is weighing in with a note this morning:

“While both ISS and Glass Lewis, as well as several prominent institutional and retail shareholders, have voiced opposition to the 2024 ratification of Mr. Musk’s 2018 compensation plan, we rather suspect it will pass, albeit with a lesser approval rate than in 2018 and perhaps by a lesser margin than popularly imagined. We base this expectation on anecdotal evidence of strong retail shareholder support and based on our conversations with institutional investors whose reasoning, on the whole, seems similar to when asked to vote in favor of the Solar City acquisition. Investors we spoke with then largely did not support the Solar City acquisition, but worried there would be a more negative share price reaction in the event the transaction were voted down, given the perception of a vote of no confidence.”

Brinkman reiterated an underweight rating (sell equivalent) on Tesla shares and a $115 price target, which assumes about 32% downside from current price levels.

Read more here on the Musk vote and key CEO pay package votes from Yahoo Finance senior legal reporter Alexis Keenan.
Wed, June 12, 2024 at 12:20 PM GMT+2

Affirm still on the move after big Apple deal

Affirm (AFRM) is still one of the hotter tickers on the Yahoo Finance platform after news dropped Tuesday of an integration into Apple (AAPL) Pay. Shares are up 1.5% pre-market following an 11% pop yesterday.

I caught up last night with Affirm’s founder and CEO Max Levchin for a new taping of my ‘Opening Bid‘ podcast. The full episode (which goes into Levchin’s views on AI and the political vibes in Silicon Valley) will release on Friday morning on Yahoo Finance and major podcast platforms.

But I put a clip below of Levchin’s comments on the tie-up below for you to check out.

Levchin stops short of sharing how this deal will financially impact Affirm (could be big given the 1.4 billion iPhones out in the wild worldwide), but hinted it could be a strong top- and bottom-line contributor over time.

He did acknowledge the deal “validates” the buy now, pay later space — which has been under siege from regulators and other parties almost since inception.