Thursday, May 23, 2024

Stock market today: Wall Street rises after inflation data

by Associated Press

NEW YORK (AP) — Wall Street is mostly rising Wednesday after a report showed inflation is making strides toward easing, even if it remains too high.

The S&P 500 was 0.3% higher in early trading. The Dow Jones Industrial Average was edging down 20 points, or 0.1%, at 33,541, as of 9:45 a.m. Eastern time, while the Nasdaq composite was 0.8% higher.

Bond prices also climbed after the highly anticipated report said inflation at the consumer level was 4.9% last month, down from 5% in March and the lowest level in two years. That was slightly better than economists expected, and other underlying measures of inflation also came in very close to forecasts.

Because the inflation data came in roughly as expected, Wall Street sees the door remaining open for the Federal Reserve to leave interest rates alone at its next meeting in June. That would be the first time it hasn’t raised rates at a meeting in more than a year, and a pause would offer some breathing room for the economy and financial markets.

The Fed has jacked up rates at a furious pace in hopes of driving down inflation. But high rates do that by slowing the entire economy and hitting investment prices broadly. They’ve already sent stock prices tumbling, caused turmoil in the banking system and dragged on the economy enough that many investors expect a recession to hit this year.

If the inflation reading had come in hotter than expected, it likely would have spooked Wall Street because it would have raised the likelihood for more rate hikes.

“Inflation is still too hot, but at least it’s cooling,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The Fed has pushed rates to be restrictive enough that inflation can slowly deflate.”

Traders immediately upped the probability they see of the Fed holding rates steady in June to nearly 87% from 79% a day before, according to data from CME Group.

Stocks that benefit the most from an easing of interest rates were leading the way on Wall Street, including Big Tech and other high-growth stocks. Amazon rose 2.2%, and Nvidia climbed 1%.

Banks also got a lift. High rates have caused cracks in the banking system in part by knocking down the value of bonds they bought and loans they made when rates were low.

Three high-profile U.S. bank failures since March have had Wall Street on the hunt for the next weak link, causing stocks of several smaller and mid-sized banks to tumble. Some under the most scrutiny rose Wednesday, including a 2.9% rally for PacWest Bancorp and a 1.7% climb for Western Alliance Bancorp.

Of course, other economic reports will arrive before the Fed’s next meeting, which runs from June 13 to June 14, that will sway its decision. One will hit Thursday, showing how inflation fared at the wholesale level.

In the meantime, inflation still remains way above the Fed’s 2% target and continues to squeeze households across the economy, particularly those with the lowest incomes.

Increased hopes for a coming pause from the Fed on rates pushed yields lower in the bond market.

WallThe yield on the 10-year Treasury fell to 3.44% from 3.52%. It helps set rates for mortgages and other important loans. The two-year Treasury yield, which moves more on expectations for Fed action, fell to 3.94% from 4.03%.

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