by NEW YORK, Dec 13 (Reuters) – U.S. stocks rose on Tuesday after an unexpectedly small rise in consumer prices fueled optimism that the Federal Reserve may soon cut its interest rate hikes to control inflation, but fears remain that the central defense could remain aggressive.
The benchmark S&P 500 (.SPX) jumped as much as 2.76% to a three-month high at the start of the trading session on news that November US consumer prices barely increased as gasoline and autos used cars cost less, leading to the smallest annual increase in inflation in nearly a year at 7.1%.
Growing expectations for smaller and slower Fed rate hikes drove US Treasury yields down sharply and helped lift rate-sensitive indicators such as the S&P 500 Growth Index (.IGX), up 1. 18%, and the S&P 500 real estate index (.SPLRCR) rose 2.04% to its highest intraday level in nearly three months. The real estate sector posted its largest daily percentage gain in two weeks as the best performer of 11 major sectors.
Fed funds futures prices have implied a better-than-even chance that the Fed follows an expected half-point rate hike this week, with hikes smaller than 25 basis points in the first two meetings of 2023 and a stop below 5% by march .
Morgan Stanley’s US chief economist Ellen Zentner now sees even smaller Fed rate hikes, by 25 basis points at the central bank’s February meeting, and no further hikes in March, leaving the top federal funds rate at 4.625%.
However, shares trimmed gains ahead of Wednesday’s Fed policy statement, in which the central bank is widely expected to announce a 50 basis point rate hike.
“There was some early excitement that the CPI number was below expectations once again – it shows some sequential cooling – but once we saw that initial spike, equity investors somewhat revalued,” said Jason Ware, chief investment officer of Albion Financial Group in Salt Lake City, Utah.
“This probably took some steam off the markets once investors realized that it could very well be (Fed Chairman) Jerome Powell throwing cold water on today’s rally tomorrow.”
The Dow Jones Industrial Average (.DJI) rose 103.6 points, or 0.3%, to 34,108.64, the S&P 500 (.SPX) gained 29.09 points, or 0.73%, to 4,019.65 and the Nasdaq Composite (.IXIC) gained 113.08 points, or 1.01%, to 11,256.81.
[1/3] Screens display trading information for ExxonMobil on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 9, 2022. REUTERS/Brendan McDermid
Energy (.SPNY), up 1.77%, was among the best-performing S&P sectors of the day, as weaker-than-expected inflation data sent the dollar lower and boosted raw.
The consumer inflation numbers follow last week’s November producer price report, which was slightly higher than expected but indicated a moderation in the trend.
However, some questioned whether the price trend could continue.
“Today’s CPI performance is incrementally good, but it needs to be sustained,” said Venu Krishna, head of US equity strategy at Barclays in New York.
“There is a big question mark as to whether we can really get to 2% inflation (the Fed’s target). Maybe we live in a world where it will be higher and that means rates will be higher and therefore multiples will definitely be higher. bass”.
Moderna Inc (MRNA.O) jumped 19.63% after the biotech company’s experimental vaccine in combination with Merck & Co Inc’s blockbuster Keytruda (MRK.N) showed promise in a cancer study of the skin. Merck shares rose 1.78%.
Pinterest Inc (PINS.N) jumped 11.90% after Piper Sandler upgraded the social media platform’s stock to ‘overweight’ from ‘neutral’.
Advancing issues outnumbered declining issues on the NYSE by a ratio of 2.83 to 1; on the Nasdaq, a ratio of 1.49 to 1 favored the advanced.
The S&P 500 made 18 new 52-week highs and 1 new low; the Nasdaq Composite recorded 92 new highs and 212 new lows.
Reporting by Chuck Mikolajczak, additional reporting by Carolina Mandl; Editing by Richard Chang
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