Release of the latest figures on consumer prices lead today’s news. Overall, the May Consumer Price Index (CPI) was unchanged in May versus April; on a year-over-year basis the Index was up 3.3% versus 3.4% a month earlier. These numbers were below economists’ expectations. Core inflation, which excludes volatile food and energy prices, was up 0.2% in May or up 3.4% year over year. The futures markets were up strongly as the inflation numbers began to be digested. This report is the last inflationary data released before the Federal Reserve announces its interest rate policy later today. As we write this report, equity indexes are up around three-quarters of one percent, and U.S. Treasury bond yields are down.
Later today, the Federal Open Market Committee (FOMC) will announce its interest-rate policy decision. While the market is largely expecting rates to be held steady, most market watchers will be keyed into the future outlook for interest rates. Traders have been positioning themselves for a potential rate cut at the September meeting. The dot plot, or the individual members' forecast of future interest rates, will be a key indicator for what the Fed voters are thinking about the direction and timing of any potential cuts. Overall, we anticipate this release, along with the accompanying press conference from Federal Reserve Chairman Powell, to trigger significant trading action in the days ahead.
The stock markets started poorly yesterday but quickly reversed themselves and trended higher throughout much of the day. Overall, the S&P 500 rose 15 points (up 0.27%), and the NASDAQ increased 151 points (up 0.88%). However, the Dow Jones Industrial Average declined 121 points (down 0.31%) based on the underperformance of several areas of the market. Market breadth was quite negative, with decliners outpacing advancers by a 1.7-to-1.0 ratio. Technology stocks were among the big winners of the day, vastly outperforming all other sectors of the market. This was helped by strong performance from Apple (AAPL), which rose 7% as it revealed its move into the artificial intelligence (AI) space through its Apple Intelligence system. On the other hand, most other market sectors ended up in the red, with financials among the worst performers.
In commodity news, oil prices rose yesterday, further rebounding from recent lows, as traders priced in bullish demand expectations for oil in the coming year. Elsewhere, U.S. Treasury bond yields were mostly up as traders priced in a high-for-longer scenario, and accordingly they retreated after the cooler inflation news this morning. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, rose yesterday as traders priced in more stock price volatility.
Looking forward, the market will be influenced by several key economic reports set to be released in the coming days. These include the initial jobless claims, as well as core- and non-core producer price indices for May, scheduled for Thursday. On Friday, the import price index and the University of Michigan’s preliminary consumer sentiment for June will be in focus. In addition, a few dozen companies will be announcing their quarterly earnings results and outlooks, including semiconductor manufacturer Broadcom (AVGO), which is slated for release after the closing bell today. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more any of the companies mentioned.
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