Equities lost steam in the final stretch of New York trading, with the S&P 500 almost erasing an advance partly fueled by in-line inflation data. In late hours, Cisco Systems Inc. delivered an upbeat outlook for the current period, but a conservative annual forecast brought a muted reaction from investors. Shorter-dated Treasuries outperformed, with the yield on two-year notes dropping from the highest since July. Swap traders boosted to about 80% the probability that the Fed will cuts rates again on Dec. 18. The dollar held at a two-year high. Bitcoin pared gains after earlier topping $93,000.
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“After the massive rally we’ve seen in stocks, investors are looking for any sort of excuse that can usher in a pullback,” said Bret Kenwell at eToro. “Markets resolved higher following the election, instilling a ‘buy the dip’ mentality. If the market were to sell off in the short term, the pullbacks are likely to be shallow as fund managers buy the dip and look to chase performance into year-end.”
Meantime, a consumer price index that matched estimates brought a certain degree of relief to traders fearing that a hotter print. Yet several Fed officials reiterated their deep uncertainty over how far the central bank will need to lower rates, highlighting the difficulty policymakers face in trying to determine the right setting to keep the economy on an even keel.
The S&P 500 was little changed. The Nasdaq 100 fell 0.2%. The Dow Jones Industrial Average rose 0.1%.
Treasury 10-year yields advanced two basis points to 4.45%. The Bloomberg Dollar Spot Index climbed 0.4%.
“A hotter-than-expected inflation number could have convinced the Fed to stand pat at its next meeting,” said Seema Shah at Principal Asset Management. “A December cut is still in the cards.”
Despite the market relief with Wednesday’s CPI report, the latest figures also underscore the slow and frustrating nature of the battle against inflation, which has often moved sideways on its broader path down.
“The in-line CPI print shows that while substantial progress has been made in the fight against elevated inflation, the ‘last mile’ is proving more challenging,” said Josh Jamner at ClearBridge Investments. “With inflation holding steady, the market narrative should not see a significant shift as a result of today’s data.”
It’s a “business-as-usual print” for the Fed, according to Bank of America Corp.’s Stephen Juneau, Meghan Swiber and Alex Cohen.
“There is nothing in today’s report that would alarm the Fed,” they said. “Therefore, a 25 basis-point cut in December firmly remains our base case.”
At Citigroup Inc., economists maintained their view that the Fed will cut rates by 50 basis points in December after the CPI data.
“While details remain volatile and not quite ‘normal,’ easing wage pressures, falling short-term inflation expectations, and high rates continuing to weigh on housing demand and prices should leave Fed officials comfortable that the path of inflation is slowing,” wrote Citi’s Veronica Clark and Andrew Hollenhorst.
Preston Caldwell at Morningstar says that while an outside possibility of a “skip” still exists, he continues to believe the Fed will most likely cut rates next month.
“We agree with current market expectations around Fed pricing,” said Lauren Goodwin at New York Life Investments. “Last week, Chair Jerome Powell reinforced that the Fed believes its policy stance is still restrictive, and that they remain on a rate-cutting trajectory.”
Powell last Thursday refrained from offering forward guidance on where rates could go from here, keeping his options open for the December meeting and beyond. He stressed that officials can take their time to lower rates because the economy is strong. He also said that policy is still restrictive, even after the November cut, and that policymakers are in the process of bringing rates to neutral levels.
With inflation still stubbornly above the Fed’s 2% goal, the Fed may have only one rate cut left in December before taking a pause, according to Skyler Weinand at Regan Capital.
“The incredible move in the stock market post-election has effectively eased financial conditions,” he said. “This easing, combined with incoming fiscal stimulus, may warrant a pause on rate cuts by the Fed in the near future to allow the dust to settle and to process more incoming data.”
The Fed cutting short-term rates along with future fiscal stimulus may both ignite inflation again and provide cause for longer term interest rates to rise, he said — adding that he sees 10-year Treasury yields climbing to 5% in 2025.
A survey conducted by 22V Research before the CPI release shows the share of investors expecting a recession has fallen while the percentage of those that believe financial conditions need to tighten has increased to the highest since June 2024.
Ellen Zentner at Morgan Stanley Wealth Management noted markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January.
“The sticky components of inflation continue to ease, giving the Fed some leeway to cut rates next month but they will most likely pause in January,” said Jeffrey Roach at LPL Financial. “The strength of some cohorts of the consumer is keeping upward pressure on prices as consumer spending hasn’t slowed yet. Stronger-than-expected economic growth is likely keeping bond yields elevated.”
While investors shrugged off the latest news on US inflation, they seem increasingly concerned about its longer-term outlook, according to Diana Iovanel at Capital Economics.
“We share their view and expect Treasury yields to rise a bit further still,” she said.
At Goldman Sachs Asset Management, Lindsay Rosner says that after a run of unseasonably hot data, the latest CPI cools fears of an imminent slowdown in the pace of rate cuts.
“Still, with uncertainty over fiscal and trade policies high there is a risk that the Fed may opt to slow the pace of easing as the New Year chill sets in,” she noted.
“It’s time to stop worrying about the Fed and inflation,” said David Russell at TradeStation. “Stocks have been on autopilot since the election and today’s numbers do nothing to hurt the trend. December is still in play for a cut.”
In fact, the options market is more concerned about a potentially big move in the S&P 500 next week following Nvidia Corp.’s earnings report than it was about Wednesday’s figures on consumer prices, Citigroup Inc. analysts say.
Traders are betting on a 0.9% move for the US equity benchmark in either direction on Nov. 21 — the session after the giant chipmaker delivers results following the closing bell next Wednesday.
Over the next month, Nvidia is now priced as the largest event for the stock market. Such near-term concerns about macro data often take a back seat when it comes to technology, where the focus is on the next big artificial-intelligence breakthrough.
Corporate Highlights:
JBS SA, the biggest global meat producer, is reaping the benefits of a world that’s eating more chicken, sending demand surging and helping the company post its best quarterly profits in two years.
Advanced Micro Devices Inc. is shedding about a thousand jobs as part of an effort to refocus on newer markets like artificial intelligence chips.
Spirit Airlines Inc. is closing in on a deal with creditors that would restructure its crushing debt load in bankruptcy court after discussions for a tie-up with rival Frontier Group Holdings Inc. fell apart.
Mastercard Inc. projected slower annual net revenue growth for the 2025 to 2027 period as the firm strives for a larger slice of the digital payments market.
Key events this week:
Eurozone GDP, Thursday
US PPI, jobless claims, Thursday
Fed speakers include Jerome Powell, John Williams and Adriana Kugler, Thursday
China retail sales, industrial production, Friday
US retail sales, Empire manufacturing, industrial production, Friday
Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 4 p.m. New York time
The Nasdaq 100 fell 0.2%
The Dow Jones Industrial Average rose 0.1%
The MSCI World Index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.4%
The euro fell 0.6% to $1.0563
The British pound fell 0.3% to $1.2705
The Japanese yen fell 0.6% to 155.58 per dollar
Cryptocurrencies
Bitcoin rose 1.7% to $89,787.51
Ether fell 3.3% to $3,173.96
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.45%
Germany’s 10-year yield advanced three basis points to 2.39%
Britain’s 10-year yield advanced two basis points to 4.52%
Commodities
West Texas Intermediate crude fell 0.1% to $68.03 a barrel
Spot gold fell 1% to $2,573.60 an ounce
This story was produced with the assistance of Bloomberg Automation.