Wall Street Gains as PCE Inflation Report Eases Concerns
The S&P 500 Index ($SPX) (SPY) is up +1.02%, the Dow Jones Industrials Index ($DOWI) (DIA) has risen +1.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) has gained +1.08%. March E-mini S&P futures (ESH25) are up +1.03%, while March E-mini Nasdaq futures (NQH25) are also up +1.01%.
Market Recovery Driven by Inflation Data
Today’s stock market rally followed a less alarming US Personal Consumption Expenditures (PCE) report. This report helped the market recover from previous losses triggered by fears of a government shutdown and the impact of today’s triple-witching, a term that refers to the expiration of stock index options, stock options, and futures contracts. Analysts suggest the sharp declines seen on Wednesday after the Federal Open Market Committee (FOMC) meeting were possibly exaggerated, as stock breadth has turned positive with most Nasdaq 100 stocks reporting gains.
Government Shutdown Fear Looms
The potential for a US government shutdown looms if Congress cannot pass a temporary funding bill by midnight tonight. Compounding this situation, the Republican-controlled House’s failure to approve the Trump-backed funding bill raises questions about bipartisan cooperation for future legislative efforts. In response, House Speaker Johnson plans to introduce a simple stop-gap funding bill that maintains current spending levels without including provisions aimed at gaining Democratic support or Trump’s request for a debt-ceiling suspension.
Concerns Over Trade Policy
There are also worries about incoming President Trump’s trade policies, particularly after he threatened tariffs on the EU unless it increases imports of US oil and gas.
PCE Inflation Report Brings Some Relief
Today’s PCE inflation data was encouraging for stock investors. The November PCE price index increased by +0.1% month-over-month and +2.4% year-over-year, which was lower than the anticipated +0.2% and +2.5%, respectively. Additionally, the core PCE, which excludes food and energy, rose +0.1% month-over-month and +2.8% year-over-year, also falling short of forecasts.
Although the PCE price index rose from October’s +2.3% year-over-year, it remains above the Federal Reserve’s inflation target of +2.0%. Earlier this year, both measures reached their respective four-year lows, with nominal and core rates at +2.1% and +2.6%.
Consumer Data Shows Mixed Signals
The November personal income report showed a +0.3% month-over-month increase, slightly below expectations of +0.4%, although October’s figure was revised upwards from +0.6% to +0.7%. Similarly, November personal spending rose +0.4%, below the expected +0.5%, while October was revised down to +0.3%.
The University of Michigan’s final December consumer sentiment index remained unchanged at an eight-month high of 74.0, which was slightly lower than the anticipated increase to 74.2. Notably, this index has risen for five consecutive months.
Stock Market Volatility Ahead
Stocks experienced a steep decline earlier this week following the FOMC’s hawkish shift in its latest meeting. The revised dot-plot indicates only -50 basis points of rate cuts in 2025, a reduction from the previously projected -100 basis points. Today’s quarterly triple-witching may also contribute to increased market volatility.
Currently, the market reflects an 11% chance of a -25 basis point rate cut at the upcoming FOMC meeting on January 28-29.
Global Markets Trend Downward
International stock markets are experiencing declines as well. The Euro Stoxx 50 is down -0.4%, following a -1.58% drop on Thursday. China’s Shanghai Composite ended the day down -0.06%, adding to Thursday’s -0.36% loss. Japan’s Nikkei Stock 225 faced its sixth consecutive loss, closing down -0.29%.
Interest Rates Update
In the bond market, the March 10-year Treasury notes (ZNH25) rose +16 ticks after hitting a six-and-a-half-month low on Thursday. The yield on the 10-year Treasury note declined by -5.6 basis points to 4.506%, retreating from its previous high of 4.592%. The slightly weaker-than-expected PCE report and personal spending data provided support for Treasury prices, which had dropped earlier in the week due to the FOMC’s projections.
European government bond yields also fell, with the 10-year German bund yield decreasing by -2.3 basis points to 2.283%, and the 10-year UK gilt yield down -5.8 basis points at 4.520%. Swaps are currently pricing in a 100% chance of a -25 basis point rate cut by the European Central Bank at its January 30 policy meeting, with a 12% likelihood of a -50 basis point cut.
Notable Moves in US Stocks
Cryptocurrency-related stocks are seeing a bounce, with bitcoin (^BTCUSD) recovering by +1% today following a significant -10% decline earlier this week. Microstrategy (MSTR) shares increased by +8%, while Coinbase (COIN), Riot Platform (RIOT), and Bit Digital (BTBT) rose by at least +2%. Mara Holdings (MARA) sees a modest gain of +0.4%.
FedEx (FDX) shares surged over +3% after announcing plans to spin off its freight division. On the other hand, Nike (NKE) fell -1% due to management’s forecast of a revenue drop in the current quarter, larger than the previous quarter’s decrease. US Steel (X) dropped -3% following warnings of decreasing Q4 earnings driven by weak steel prices and demand.
Eli Lilly (LLY) surged over +5% as its competitor Novo Nordisk A/S (NOVOB DC) reported disappointing results with its weight-loss drug, leading to a near -20% drop in Novo Nordisk’s stock. Additionally, Occidental Petroleum (OXY) shares climbed more than +5% following Berkshire Hathaway’s increase in its stake in the company.
Earnings Reports (12/20/2024)
Carnival Corp (CCL), PACS Group Inc (PACS), Winnebago Industries Inc (WGO).
On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy
here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
