Last Updated 4:05 PM EST
Stock indices finished today’s trading session mixed as investors try to digest today’s CPI report. The Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX) fell 0.46% and 0.03%, respectively. Meanwhile, the Nasdaq 100 (NDX) rallied 0.71%.
The real estate sector (XLRE) was the session’s laggard, as it lost 1%. Conversely, the consumer discretionary (XLY) sector was the session’s leader, with a gain of 1.19%.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.75%. In addition, the Two-Year Treasury yield also increased, as it hovers around 4.62%. This brings the spread between them to -87 basis points.
Compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for June 2023. In fact, the market’s expectations for a rate in the range of 5.25% to 5.5% increased to 49.3% compared to yesterday’s expectations of 42.1%.
In addition, the market is now also assigning a 39.5% probability to a range of 5% to 5.25%. For reference, investors had assigned a 44.7% chance yesterday.
Last updated: 2:18 PM EST
Stocks cut their losses in afternoon trading. As of 2:18 p.m. EST, the Dow Jones Industrial Average and the S&P 500 are down 0.4% and 0.1%, respectively. Meanwhile, the Nasdaq 100 is up 0.3%.
Earlier today, Philadelphia Fed President Patrick Harker gave his thoughts about the current economic situation. He stated that inflation is showing early signs of easing but still backed 25 basis point rate hikes going forward.
Indeed, he also sees the need for interest rates to climb higher than 5% and remain there for a while. In addition, he anticipates the unemployment rate to climb to 4.5%. Nevertheless, he appeared to be slightly more dovish than some of his colleagues, as he pointed to interest rate cuts potentially happening in 2024.
Last updated: 12:33 PM EST
Stocks are in the red halfway into today’s trading session. As of 12:33 p.m. EST, the Dow Jones Industrial Average (DJIA), the S&P 500 (SPX), and the Nasdaq 100 (NDX) are down 0.7%, 0.5%, and 0.2%, respectively.
On Tuesday, the National Federation of Independent Business (NFIB) released its Small Business Optimism Index for the month of January. As the name suggests, it is a survey that measures the level of optimism among small businesses.
In January, the index increased by 0.5 points to a level of 90.3. Nevertheless, it has remained below its 49-year average of 98 for the last 13 months. In addition, 26% of small business owners cited inflation as their single largest concern related to operations. This was down from last month’s 32%.
Still, 42% of businesses in the survey said they raised selling prices. Of the small businesses that saw lower profits, 26% attributed the decline to higher material costs, while 11% pointed to labor costs. Weaker sales made up 27% of the blame.
This data highlights that consumer spending is still strong since 73% of respondents who saw a decline in profits didn’t blame weaker sales. However, it demonstrates the impact that inflation has on profitability, as the higher revenue figures actually led to operating deleverage, meaning that earnings didn’t grow faster than sales.
Last updated: 10:57 AM EST
Stocks fall back into the red after a strong rally from the open. The Nasdaq 100 (NDX), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) are down by 0.8%, 0.6%, and 0.5%, respectively, as of 10:57 a.m. EST, Tuesday.
Last updated: 10:07 AM EST
Stocks turned green after a rough start on Tuesday as traders digested the CPI numbers. The Nasdaq 100 (NDX), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) are up by 0.8%, 0.4%, and 0.1%, respectively, as of 10:07 a.m. EST, Tuesday.
The Consumer Price Index (CPI) reading came in slightly hotter than expected. In simple terms, the CPI measures the average change in prices paid by consumers over a period of time for a basket of goods.
Economists were expecting the CPI to rise 0.4% over December, but it came in higher than expected at 0.5%. This was an increase from last month’s reading of 0.1%. Meanwhile, the core CPI number, which excludes food and energy prices, increased by 0.4% in January versus expectations of 0.3%, which did not change compared to last month. Today’s results suggest that the inflation battle is far from over, as we’re not in the clear just yet.
Indeed, this strengthens the Federal Reserve’s rhetoric that interest rates need to go higher and remain there for quite some time before inflation comes under control.
First published 5:50AM EST
The CPI will determine if the prices of goods and services are falling or rising. If the number comes higher than expected, the markets will most likely bleed during the trading session today. However, if the number comes in lower than expected, it will spark optimism among traders and lead to expectations of a dovish Fed policy.
Companies reporting earnings today include beverage behemoth Coca-Cola (NYSE:KO), travel platform Airbnb (NASDAQ:ABNB), and Restaurant Brands International (NYSE:QSR), owner of Tim Hortons, Burger King, and Popeyes. The earnings of these companies may likely reflect real consumer spending behavior in an inflationary environment.
On the other hand, all major European indices are trading in positive territory, as traders hope for good news from the U.S. CPI data.
Asia-Pacific Markets Remain Mixed
Chinese indices ended the trading session mixed today ahead of the U.S. CPI release. Hong Kong’s Hang Seng closed down 0.24%. Meanwhile, Mainland China’s Shanghai Composite and Shenzhen Component indices ended up 0.28% and 0.06%, respectively.
Japan reportedly announced Kazuo Ueda as the next Governor of the Bank of Japan, as per Reuters. The Nikkei and Topix closed up 0.64% and 0.78%, respectively.
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