US stocks rose on Thursday after a cooler-than-expected reading on producer prices helped soothe investor worries stemmed by Wednesday’s surprise uptick in consumer prices.
The Dow Jones Industrial Average was just above the flatline while the S&P 500 rose 0.6%, coming off a rout that saw the gauges drop about 1%. The tech-heavy Nasdaq Composite gained roughly 1.2%.
Meanwhile, the 10-year Treasury yield traded around 4.57% after surging to touch its highest level since November on Wednesday.
The Producer Price Index in March rose 0.2% from the previous month, a lower rate of growth than economists had forecast. Year-over-year growth of 2.1% was also below estimates. However, that annual growth represented the fastest jump in producer prices in nearly a year.
Stocks pulled back and bond yields soared after a hotter-than-expected March CPI report prompted investors to reassess expectations for Federal Reserve policy. The market is now pricing in just two rate cuts in 2024, to come later in the year than foreseen. A handful of analysts believe no cuts or even a hike may be possible, depending on how economic data shape up.
Across the pond, the European Central Bank held rates steady at record highs but gave a clear signal that rate cuts were on the way.
Another headwind, rising oil prices, returned to the fore amid growing worries about a potential attack on Israel by Iran forces. Crude futures slipped but stayed near six-month highs, with West Texas Intermediate trading a tad below $86 per barrel, while Brent stayed above $90.
Against that backdrop, hopes are that first-quarter corporate results can provide momentum to stocks, given limited signs that high borrowing costs are slowing earnings. As reports trickle in, investors are bracing for quarterly updates from some of America’s biggest banks, including JPMorgan, to usher in the season in earnest on Friday.
Investors hoping for interest rate cuts may have to wait for an early holiday season present from the Federal Reserve. After further signs that inflation’s decline has slowed while economic growth remains resilient, the economics teams at Bank of America and Deutsche Bank both pushed back their projections for Fed interest rate cuts this year.
Both economics teams, which had previously seen easing starting in the early summer, now believe the Fed will cut for the first time in December, meaning just one total cut for 2024.
“We no longer think policymakers will gain the confidence they need to start cutting in June,” Bank of America US economist Michael Gapen wrote in a research note on Thursday. “We expect inflation to remain relatively firm in the near term. We are forecasting 0.25% m/m for core PCE in March and April. This will make a cut as early as June or September unlikely absent clear signs of labor market deterioration.”
Deutsche Bank Chief US Economist Matthew Luzzetti wrote in a new research note that recent developments, including hotter-than expected inflation prints, solid labor market data and easing financial conditions have “have clearly diminished the case for commencing rate cuts.”
Luzzetti wrote that more challenging year-over-year comparisons for inflation readings later in the year, as well as the prospect of cutting rates near the election only based on more positive inflation data, could limit the Fed’s willingness to cut prior to December.
Luzzetti added that risks to this stance are “two-sided.”
“Further disappointing inflation data or an election outcome that delivers fiscal stimulus and / or policies that could lift inflation (e.g., trade or immigration policies) would argue for no rate cuts this year and into 2025,” Luzzetti wrote. “Conversely, higher-for-longer raises the risks of financial stability events or a more aggressive tightening of financial conditions that could trigger a sharper slowdown in the economy that eventually necessitates more significant policy easing.”
A hotter-than-expected consumer prices reading sent markets into a tizzy on Wednesday as investors pushed back expectations for interest rate cuts amid fears inflation’s decline may be slowing. On Thursday, wholesale price increases told a slightly different story. The latest Producer Price Index (PPI) showed core prices, which excludes the volatile food and energy categories, increased 0.2% month-over-month in March, down from a 0.3% increase seen in February.
Notably, the month-over-month PPI number was lower than 0.4% increase seen in Wednesday’s Consumer Price Index (CPI) report.
“After another sizzling CPI report, producer prices offer some relief for Fed officials who may view the recent price reports as too hot to consider rate cuts in the immediate future,” Oxford Economics US economist Matthew Martin wrote in a note to clients on Wednesday.
To Charles Schwab senior investment strategist Kevin Gordon, the conflicting data from the last two days provides a clear takeaway for investors.
“Volatile inflation is the reality for the next several years,” Gordon told Yahoo Finance. “One month you go back into, you know, core goods inflation, the next month, meaning March you go back into core goods deflation, and everybody’s pointing at these different drivers of what was what was sending inflation higher each month.”
He added: “In terms of positioning for that, it tends to, all else equal , be more supportive o the value oriented parts of the market.”
Rent the Runway shares soared during Thursday’s trading session after the company shared an upbeat outlook for the year ahead. The clothing rental retailer plans to break even and free cash flow this year.
Rivian Automotive shares were trading below $10 each for the first time, after a report that rival Ford has lowered the price of its F-150 Lightening in an effort to boost electric vehicle sales.
CarMax stock fell as much as 12% after the used automotive retailer posted fourth-quarter results that missed analyst estimates on both the top and bottom lines. The company also pushed back its goal to sell 2 million units annually “to between fiscal year 2026 and fiscal year 2030 due to uncertainty in the timing of market recovery.”
Amazon CEO Andy Jassy is going all in on generative AI. In his annual letter to shareholders on Thursday, the Amazon chief said the technology is the company’s next major product opportunity, up there with Marketplace, Prime, and Amazon Web Services (AWS). Amazon shares were on track for a record close on Thursday.
Nvidia stock gained more than 2% on Thursday. Shares of the AI chipmaker helped maintain the tech-heavy Nasdaq Composite in green territory while the other major averages wavered.
Oil fell on Thursday despite worries of escalating tensions in the Middle East. West Texas Intermediate futures retreated almost 1% to trade below $86 per barrel while Brent, the International benchmark price, hovered below $90 per barrel.
New York Fed president John Williams offered some reassurances to investors a day after another hot inflation reading spooked markets, saying it will make sense to cut rates gradually “starting this year” if the economy proceeds as expected.
Stocks opened slightly higher on Thursday, reversing earlier pre-market losses after a cooler-than-expected reading on producer prices helped calm concerns of reaccelerating inflation. The Dow Jones Industrial Average traded near the flatline while the S&P 500 gained 0.2% coming off a rout that saw the gauges drop about 1% in the prior session. The tech-heavy Nasdaq Composite gained 0.5%.
Yesterday was one of those shock moments in markets. Some calm has returned to markets this morning, but futures are still under pressure and nervousness is in the air ahead of the PPI report. A new survey of US investors out of JP Morgan also isn’t bolstering sentiment on the Street. Less of an appetite to own stocks here.
