This morning, most of Wall Street’s attention is on the latest inflation figures from the Department of Labor, given the impact they may have on the pace of the Federal Reserve’s monetary policy loosening course in 2025. At 8:30 A.M. (EST), we learned that the Consumer Price Index (CPI) increased 0.3% on a month-to-month basis in November and was up 2.7% over the last year. Both those figures were above the October readings, but were in line with consensus estimates. The core CPI, which excludes the more-volatile food and energy components, rose 0.3% and 3.3% on a month-to-month and one-year basis, respectively, matching the prior month’s figures, but also not showing additional progress in slowing the pace of price growth at the consumer level.
The CPI data did not change the narrative that the Federal Reserve will cut the benchmark short-term interest rate by a quarter point, to 4.25%-4.50%, at next week’s Federal Open Market Committee (FOMC) meeting. It also kept intact the view that the central bank will turn a little more hawkish about the federal funds rate in 2025, as inflation has proven a bit sticky this fall after falling over the summer months and the labor market (the other part of the Fed’s dual mandate) has held up very well this year. These circumstances may lead the Fed to dial back on the number of rate cuts it implements next year, as the economy continues to expand.
The equity futures, which were mixed, but also none too far removed from the neutral line heading into the CPI release, are now presaging a modestly higher start for the U.S. stock market when trading kicks off stateside. Treasury yields, which have stabilized in recent days, moved a bit lower on the price data.
The major equity averages traded modestly lower during yesterday’s session, with investors showing an unwillingness to make a major move ahead of today’s CPI report. The biggest laggard among the 11 major equity groups was the technology sector, with some disappointing reactions to quarterly results pulling down the group. Investors took profits in shares of Oracle (ORCL) in a case of “buy on the rumor, sell on the news,” as ORCL shares were trading sharply higher in the days leading up to the earnings release. Shares of fellow technology company MongoDB (MDB) also had a negative impact on the technology sector.
We did get some earnings news since the close of trading yesterday afternoon. Shares of department store operator Macy’s (M) are down in pre-market action after the release of disappointing quarterly results that also included a reduction in its full fiscal-year prognostications. Likewise, the stock of Dave & Buster’s Entertainment (PLAY) are notably lower on the company’s disappointing October-period results and the resignation of CEO Chris Morris. Neither of these reports is expected to have a notable impact on the performance of the sectors they operate within.
Yesterday’s session also brought some merger & acquisitions news. We learned that a federal judge in Oregon blocked The Kroger Company’s (KR) proposed $25 billion merger with Albertsons Companies (ACI), ruling that the largest merger in U.S. supermarket history would limit competition and harm consumers. The ruling is a major setback for the grocers and puts the merger’s likelihood in jeopardy. Likewise, reports surfaced that the outgoing Biden Administration plans to block Japan-based Nippon Steel’s acquisition of U.S. Steel (X), citing national security concerns; at this point it seems likely that the incoming Administration will agree with that stance. Meanwhile, a leading financial daily reported that struggling pharmacy concern Walgreens Boots Alliance (WBA) is in talks to be acquired by privately held Sycamore Partners. Shares of WBA, which have tumbled in recent years, rallied nearly 20% following the report. There is a sense on Wall Street that M&A activity will pick up notably next year, as borrowing rates come down and the incoming Trump Administration plans to roll back a number of regulations on the banking industry. The banking stocks have risen considerably on this sentiment since the Presidential election took place on November 5th.
In the commodities market, the price of oil is rising this morning on news from China. Specifically, China has pledged to continue loosening its monetary policies in an effort to spur economic demand. Investors view this as a positive for future crude demand and that is pushing the price of oil both here and overseas higher. - William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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