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Stocks Hit Fresh Highs After Cooling Inflation Data

June 14, 2024
minute read

The S&P 500 and the Nasdaq Composite hit fresh all-time highs following the release of inflation data that led traders to increase their expectations that the Federal Reserve will cut interest rates this year.

The S&P 500 increased by 0.9%, bringing its year-to-date gains to 14%, while the Nasdaq Composite, which is dominated by technology stocks, rose by 1.5%. In contrast, the Dow Jones Industrial Average slipped slightly, falling by 35 points or 0.1%. The yield on the 10-year Treasury note, a key indicator for borrowing costs, also declined.

Inflation data released Wednesday morning, prior to the Federal Reserve’s policy meeting, indicated a cooling in inflation for May, with a broad-based slowdown in price increases. The consumer price index (CPI) rose by 3.3% compared to a year ago, which was slightly lower than the previous month’s reading and below the 3.4% increase anticipated by economists.

“This is ideal,” commented Gina Bolvin, president of Bolvin Wealth Management Group. “It aligns perfectly with the Fed's objectives.”

Later in the afternoon, Federal Reserve officials noted in their June policy statement that there had been some progress towards the central bank's goal of 2% inflation in recent months. As expected, the Fed kept interest rates unchanged and projected one rate cut for this year.

Traders, however, continued to anticipate two rate cuts in 2024 following the release of the Fed's projections. The probability of the central bank cutting rates at least twice this year rose to approximately 61%, up from 52% the previous day.

“The committee’s recognition that inflation is declining and moving toward the Fed’s 2% target is crucial,” said Quincy Krosby, chief global strategist for LPL Financial.

The potential for lower interest rates buoyed shares of smaller companies, which typically allocate a larger portion of their operating profits to debt repayment compared to larger firms. Consequently, the Russell 2000 index saw a 1.6% gain.

Stocks in the building products sector also surged, as investors speculated that lower borrowing costs would stimulate home construction and sales.

In the S&P 500, the information technology sector led the gains. Apple shares surged by 2.9%.

Oracle shares soared by 13% following the announcement of new artificial intelligence deals with Microsoft, Alphabet, and OpenAI late Tuesday.

In the bond market, the yield on the 10-year Treasury note decreased to 4.294% from 4.403% on Tuesday. The U.S. dollar weakened, with the WSJ Dollar Index showing a decline against a basket of currencies.

Traders are also looking ahead to Thursday, when a measure of producer prices will be released, providing another insight into inflation trends.

Editorial Board
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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