Wednesday, July 24, 2024

Stock market today: Wall Street drifts and yields wobble following inflation update

by Associated Press

NEW YORK (AP) — Wall Street is drifting Thursday after a report showed U.S. inflation is warmer than expected, but maybe not by enough to dash traders’ dreams of lower interest rates later this year.

The S&P 500 was down 0.3% in morning trading, though it’s still hanging within 0.5% of its all-time high set two years ago. The Dow Jones Industrial Average was down 131 points, or 0.3%, as of 10:30 a.m. Eastern time, and the Nasdaq composite was 0.2% lower. All three indexes flipped from early gains to losses.

Stocks had roared into the end of last year on expectations that a cooldown in inflation would convince the Federal Reserve to cut interest rates sharply in 2024, which would boost prices for investments. Thursday morning’s inflation report was seen as a test that could show whether Wall Street’s hopes had gone overboard.

It showed U.S. consumers paid prices that were 3.4% higher overall in December than a year earlier. That’s an acceleration from November’s 3.1% inflation rate and a touch warmer than economists expected.

But trends underneath the surface may have been more encouraging. After stripping out food and fuel prices, which can shift sharply from month to month, the rise in prices from November into December roughly matched economists’ expectations.

Altogether the data will likely cause traders to push back forecasts for when the first cut to rates will arrive, several analysts said, but they don’t preclude the central hopes that have sent stocks near records: Inflation is cooling, albeit in a jagged way, and the economy looks likely to avoid a bad recession.

“Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts,” said Seema Shah, chief global strategist at Principal Asset Management. “These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%.”

Treasury yields rose immediately after the inflation report when traders trimmed bets that the first cut to rates will arrive as soon as March. But they began wobbling soon after that.

The yield on the 10-year Treasury rose to 4.02% from 3.98% shortly before the report’s release, but it was still down from its 4.04% level late Wednesday.

The two-year Treasury yield, which more closely tracks expectations for Fed action, went on a similar, shaky run. It sank from Wednesday night into Thursday morning before jumping after the inflation report and then yo-yoing a couple times.

Economists at Bank of America said they’re sticking with their forecast for the first cut to rates coming in March, despite the warmer-than-expected inflation data. Some of the drivers of the recent strength, particularly used cars, should fade in coming months, they said in a BofA Global Research report.

A jump in oil prices put some upward pressure on inflation and yields, as they trimmed their sharp losses from earlier in the week. A barrel of benchmark U.S. crude rose 2.8% to $73.40. Brent crude, the international standard, gained 2.3% to $78.57 per barrel.

Also in the energy industry, natural-gas producer Chesapeake Energy jumped 6.7% after it agreed to sell itself to Southwestern Energy in an all-stock deal valued at $7.4 billion. Southwestern rose 1.5%.

Elsewhere on Wall Street, Citigroup fell 2.7% after it detailed a list of charges it will take against its fourth-quarter results, related to everything from Argentina’s troubled economy to a previously disclosed special assessment by the Federal Deposit Insurance Corp.

Hertz sank 4.8% after it said it expects to record a drop in the fourth quarter for an underlying measure of profits, and it’s selling about 20,000 electric vehicles to cut its EV fleet by a third.

In cryptocurrencies, the price of bitcoin was swinging a day after U.S. regulators allowed for the trading of the first exchange-traded funds that hold the digital currency rather than just futures related to it. The hope in crypto world is that by making investing in bitcoin easier, the ETFs will draw new types of investors to the field, including retirement savers and big institutions.

Coinbase Global, which will keep custody of bitcoins for some of the ETFs, climbed at the start of trading but then gave up the gains. It was recently down 2.5%.

In stock markets abroad, indexes were mixed.

Tokyo’s Nikkei 225 rose 1.8% to its highest finish since February 1990, when Japan’s bubble economy of inflated real estate and stock prices was beginning to deflate. Indexes in Europe, meanwhile, were mostly lower.

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