Stock Market Rises as Inflation Data Keeps Fed Rate Cut on Track

US stocks experienced a mixed performance on Wednesday as investors reacted to new consumer inflation data, which appears to support the Federal Reserve's plans for another interest rate cut next month. The Dow Jones Industrial Average saw a slight increase, while the S&P 500 and Nasdaq Composite faced minor declines after an initial rise.

Key Takeaways

• The Dow Jones Industrial Average rose approximately 0.1%.
• The S&P 500 and Nasdaq Composite fell by about 0.1% and 0.3%, respectively.
• Consumer prices increased by 2.6% year-over-year in October, aligning with forecasts.
• Core inflation also met expectations, rising 3.3% year-over-year.
• An 80% probability of a rate cut in December is indicated by the CME FedWatch tool.

Inflation Data Overview

The Consumer Price Index (CPI) for October showed a year-over-year increase of 2.6%, matching economists' predictions. Month-over-month, the CPI rose by 0.2%, consistent with the previous month’s performance. Core inflation, which excludes food and energy prices, also met estimates with a 3.3% increase year-over-year and a 0.3% rise month-over-month.

Market Reactions

Following the inflation report, the stock market displayed mixed signals. The Dow Jones Industrial Average opened about 0.2% higher, recovering from a previous decline. However, both the S&P 500 and Nasdaq Composite saw slight decreases, reflecting investor caution amid ongoing inflation concerns.

Federal Reserve Outlook

The inflation data is crucial for the Federal Reserve as it prepares for its next meeting. Minneapolis Fed President Neel Kashkari emphasized that inflation trends will be a key focus, stating that any unexpected rise in inflation could lead to a reassessment of rate cut plans. Currently, traders are pricing in an 80% chance of a 25 basis point rate cut in December, up from just under 60% earlier in the week.

Sector Performance

• Tesla (TSLA): Shares of Tesla attempted a recovery after a 6% drop on Tuesday, as the company navigates new challenges with the incoming administration.
• Rivian (RIVN): Rivian's stock surged by double digits following Volkswagen's increased investment in the electric vehicle manufacturer.

Food Inflation Trends

Food inflation remains a significant concern, with grocery prices climbing 1.1% year-over-year. The overall food category saw a 2.1% increase, driven by a 3.8% rise in dining out costs. Notably, egg prices surged by 30.4% year-over-year, although they experienced a 6.4% decline month-over-month.

Conclusion

As the market digests the latest inflation data, the focus remains on the Federal Reserve's upcoming decisions regarding interest rates. With inflation showing signs of stability, investors are keenly watching for any shifts in policy that could impact the economy and the stock market in the coming months.

Sources

• Stock market today: Dow, S&P 500, Nasdaq trade mixed as inflation print keeps Fed rate cut on track, Yahoo.
• Stock market today: Dow, S&P 500, Nasdaq trade mixed as inflation print keeps Fed rate cut on track, Yahoo Finance.