Strong earnings from a key AI stock and a surprisingly cool inflation reading put the stock market back into rally mode.
The Dow Jones Industrial Average rose 421 points, or 0.9%. The S&P 500 rose 1.1%. The Nasdaq Composite rallied 1.5%.
The yield on the 2-year Treasury note was down to 3.46%. The 10-year yield was down to 4.12%.
Micron Technology set the tone when it crushed expectations last night. Micron is a key supplier of high-bandwidth memory, or HBM, for artificial-intelligence servers, so its report gave a boost to recently-struggling AI stocks.
Then came the November consumer price index, which rose at a 2.7% annual rate. That was well below expectations at 3%. The core CPI, which excludes volatile food and energy prices, rose at a 2.6% annual rate.
“Not since the opening months of 2021 was core inflation running this lukewarm on a three-month basis,” writes Rosenberg Research’s David Rosenberg. “And three months, my friends, is a pattern, not a blip. The FOMC hawks and bond bears alike desperately need to go back to the drawing board, and in a hurry.”
Not everyone is ready to roll out the red carpet for more cuts. Odds of a January cut were only at 26.6%, compared to 24.4% prior to the data, according to the CME FedWatch Tool. Market commentators also note the numbers were messy due to the government shutdown.
“Today’s low inflation reading won’t move the needle for the Fed given how noisy the data is,” writes Kay Haigh, global co-head of fixed income and liquidity solutions in Goldman Sachs Asset Management. “The canceling of the October report makes month-on-month comparisons impossible, for example, while the truncated information-gathering process given the shutdown could have caused systematic biases in the data.”
Haigh argues the Fed will focus on the December CPI, which is due out two weeks before the January meeting.