While inflation data maintains prospects for a Fed rate drop, Wall Street ends divided

The Dow Jones Industrial Average and the S&P 500 closed slightly higher on Wednesday, while the Nasdaq fell, following data indicating that October consumer prices rose as expected. This outcome reinforced market bets on a potential interest rate cut by the U.S. Federal Reserve in December.

The Labor Department reported that the consumer price index (CPI) increased 0.2% in October, marking the fourth consecutive monthly rise, and climbed 2.6% year-over-year. Excluding food and energy, the core CPI rose by 0.3%, aligning with economists' predictions.

After the release, traders saw an over 82% likelihood of a 25 basis-point rate reduction at the Fed’s December meeting, up from 58.7% earlier in the week, based on CME Group's FedWatch tool.

While some Fed officials urged caution, Minneapolis Fed President Neel Kashkari expressed confidence that inflation was declining, stating in an interview with Bloomberg TV that the CPI figures confirmed this trend.

"There's relief that inflation didn't exceed expectations, which was a concern ahead of today's CPI release," noted Angelo Kourkafas, senior investment strategist at Edward Jones. "The in-line data helps alleviate some of those fears and doesn't counter arguments for a December rate cut."

The consumer discretionary sector index rose by over 1%, likely driven by anticipation of rate cuts, Kourkafas added. However, Dallas Fed President Lorie Logan cautioned against aggressive cuts, warning that it could risk reigniting inflation.

The Dow Jones climbed 47.21 points (0.11%) to close at 43,958.19, the S&P 500 edged up 1.39 points (0.02%) to 5,985.38, while the Nasdaq Composite dropped 50.66 points (0.26%) to finish at 19,230.74.

The inflation report also led to a notable drop in U.S. Treasury 2-year yields, reflecting expectations for a December rate cut. Conversely, the benchmark 10-year yield rebounded, reaching 4.46%, as investors focused on longer-term inflation concerns tied to President-elect Donald Trump's policies.

Investors anticipate a pro-business approach and potential tax cuts under the new administration. Republican control of the House, projected on Wednesday, could facilitate Trump's policy agenda, said Sahak Manuelian, managing director and head of equity trading at Wedbush Securities.

Venu Krishna, head of U.S. equity strategy at Barclays, highlighted optimism for risk assets but noted that factors like rates, inflation, and valuations present more significant challenges now compared to 2016, during Trump’s previous presidency.

In corporate news, Spirit Airlines (NYSE) shares plummeted 59% following reports that the airline was preparing for bankruptcy protection, despite ongoing talks with creditors. Meanwhile, Rivian (NASDAQ) surged 13.7% after Volkswagen announced an increased investment in the electric vehicle company.

On the NYSE, declining stocks outpaced advancing ones by a 1.41-to-1 ratio, with 371 new highs and 113 new lows. The Nasdaq saw 1,459 advancing stocks versus 2,839 declining ones, resulting in a 1.95-to-1 ratio. The S&P 500 recorded 58 new 52-week highs and 15 new lows, while the Nasdaq reported 201 new highs and 165 new lows.

Trading volume on U.S. exchanges totaled 16.49 billion shares, above the 20-session average of 13.46 billion.

 

 

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.