THE Nasdaq Composite (NASDAQ INDEX: ^IXIC) jumped about 2% after new economic data showed a slowdown in inflation, a relief for investors that also sent Treasury yields lower. THE Dow Jones Industrial Average (DJ CLUES: ^ DJI) jumped more than 600 points.
Shares of many artificial intelligence (AI) stocks rose following the news. Semiconductor company Micron technology (NASDAQ:MU) was trading up 5.7% as of 12:12 p.m. ET. Meanwhile, AI software companies BigBear.ai (NYSE:BBAI) And C3.ai (NYSE:IA) were trading nearly 5% and 3% higher, respectively.
Stocks began to rally yesterday after figures from December’s Producer Price Index (PPI) report rose less than expected, suggesting inflation is still trending downward. The focus was on the Consumer Price Index (CPI) this morning, which did not disappoint.
Consumer prices in December rose 0.4% from the previous month, slightly above expectations. However, the underlying CPI, excluding more volatile food and gasoline prices, rose only 0.2%, slightly less than expected, once again suggesting that pressure on prices could start to ease. The CPI rose 2.9% year-on-year, in line with expectations. The yield on the 10-year U.S. Treasury note fell about 12 basis points to 4.67% after reaching high levels in recent weeks.
The report looks good because most of the increase comes from a 2.6% rise in energy prices, much higher than what has been recorded in recent months. Meanwhile, housing, which has the largest weighting in the CPI, continued to improve as prices fell.
“Today’s CPI could help the Fed be a little more dovish. It won’t change expectations of a pause later this month, but it should end some talk about a possible rate hike by the Fed.” Morgan Stanley Wealth Management chief economic strategist Ellen Zentner told CNBC. “And judging by the initial market reaction, investors seemed to feel a sense of relief after a few months of tougher inflation numbers.”
In other good news, the big banks that released their results this morning reported strong results and showed the economy on solid footing. Traders betting on what the Federal Reserve will do with rates this year are still concerned about inflation, but the odds of seeing more than one rate cut this year have increased, even though the majority still think it There will only be one.
Today’s inflation report paints a rosy picture. Inflation continues to trend in the right direction, the job market is strong, and returns may be high for good reasons due to economic expansion. So it makes sense that investors are buying the news today. Of course, the situation is unstable, and I suspect it could remain so in the short term. Inflation remains above the Fed’s preferred 2% target, and a bad report could cast doubt on the belief that the nation’s central bank has beaten inflation.
