Highlights
- Consumer prices rise moderately in November
- Growth, real estate stocks climb as yields fall
- Dow up 0.3%, S&P 500 up 0.73%, Nasdaq up 1.01%
- Moderna Inc surges 19.63%
New York: US stocks rose on Tuesday after a unexpectedly small consumer price increase buoyed optimism that the Federal Reserve could soon dial back its inflation-taming interest rate hikes, but concerns remained the central back could stay aggressive.
Rising expectations for smaller and slower Fed rate hikes sent U.S. Treasury yields sharply lower and helped lift rate-sensitive gauges like the S&P 500 growth index, up 1.18 per cent, and the S&P 500 real estate index up 2.04 per cent to their highest intraday levels in nearly three months. The real estate sector notched its biggest daily percentage gain in two weeks as the best performing of the 11 major sectors.
Fed funds futures prices implied a better-than-even chance that the Fed will follow an expected half-point rate hike this week, with smaller 25-basis point hikes at its first two meetings of 2023, and stopping shy of 5 per cent by March.
Morgan Stanley's chief U.S. economist Ellen Zentner now sees even smaller Fed rate hikes, of 25 basis points at the central bank's February meeting, and no further increases in March, leaving the peak fed funds rate at 4.625 per cent.
Still, equities pared gains ahead of the Fed's policy statement on Wednesday, in which the central bank is widely expected to announce a 50 basis point rate hike.
"There was some excitement early on that the CPI number was once again below expectations - it shows some sequential cooling - but once we saw that initial pop, stock investors kind of reassessed," said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.
"That probably took some of the steam out of the markets once investors realized tomorrow very well may be (Fed Chair) Jerome Powell throwing cold water on the rally today." The Dow Jones Industrial Average rose 103.6 points, or 0.3 per cent, to 34,108.64, the S&P 500 gained 29.09 points, or 0.73 per cent, to 4,019.65 and the Nasdaq Composite added 113.08 points, or 1.01 per cent, to 11,256.81.
Energy, up 1.77 per cent, was among the best performing S&P sectors on the day as the softer-than-anticipated inflation data sent the dollar lower and boosted crude oil prices.
The consumer inflation numbers follow November's producer prices report last week, which was slightly higher than expected but pointed to a moderation in the trend.
Still, some questioned whether the trend in prices could continue.
"Today's CPI print is incrementally good, but it needs to be sustained," said Venu Krishna, head of U.S. equity strategy at Barclays in New York.
Pinterest Inc jumped 11.90 per cent after Piper Sandler upgraded the social media platform's stock to "overweight" from "neutral." Advancing issues outnumbered declining ones on the NYSE by a 2.83-to-1 ratio; on Nasdaq, a 1.49-to-1 ratio favored advancers.
"There is a big question mark whether we can really come to the 2 per cent inflation (Fed target). Perhaps we live in a world in which it will be higher and that means rates will be higher and then multiples will certainly be lower."
Moderna Inc surged 19.63 per cent after the biotechnology firm's experimental vaccine in combination with Merck & Co Inc's blockbuster drug Keytruda showed promising results in a skin cancer study. Merck shares advanced 1.78 per cent.
The S&P 500 posted 18 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 92 new highs and 212 new lows.
