S&P and Nasdaq Hit New All-Time Highs as Inflation Falls More Than Expected

Summary Highlights:

1. New All-Time Highs for S&P 500 and Nasdaq: Both indexes closed at new all-time highs for the fourth consecutive day.

2. Mixed Market Performance: The Dow, small-cap Russell 2000, and mid-cap S&P 400 were in the red, while the S&P 500 and Nasdaq were in the green.

3. Better-Than-Expected Inflation Reports:

   • Producer Price Index (PPI): Fell by 0.2% month-over-month, lower than the previous month's 0.5% increase and expectations of 0.1%. Year-over-year, PPI rose by 2.2%, lower than the previous month and forecasts.

   • Core PPI: Remained flat month-over-month and increased by 2.3% year-over-year.

   • Consumer Price Index (CPI): Headline CPI rose by 3.3% year-over-year, slightly below last month's 3.4%. Core CPI increased by 3.4% year-over-year, down from the prior month's 3.6%.

4. Federal Reserve's Stance on Inflation: The Fed is looking for sustained evidence of inflation moving towards its 2% target before considering further rate cuts. The FOMC announcement reiterated this cautious approach.

5. Upcoming Personal Consumption Expenditures (PCE) Index: This report, the Fed's preferred inflation gauge, will be closely watched for further signs of declining inflation.

6. Jobless Claims: Weekly jobless claims rose by 13,000 to 242,000, higher than the consensus estimate of 222,000. The four-week moving average was relatively stable.

7. Economic Data Releases: Import and Export Prices and Consumer Sentiment data are expected today.

8. Federal Reserve Policymakers' Speeches: Lisa Cook and Austan Goolsbee will speak at their respective engagements.

9. Strong Weekly Performance for S&P 500 and Nasdaq: Both indexes are on pace to close higher for the week, driven by gains in the tech sector and the ongoing AI boom.

In a mixed performance, the Dow, small-cap Russell 2000, and mid-cap S&P 400 declined, while the S&P 500 and Nasdaq achieved new all-time highs, marking four consecutive days of record closes.

The market responded positively to another better-than-expected inflation report, this time from the Producer Price Index (PPI), which measures wholesale inflation. The headline PPI fell by 0.2% month-over-month, compared to the previous month's 0.5% increase and expectations of 0.1%. On a year-over-year basis, the PPI rose by 2.2%, slightly below last month's 2.3% and lower than the anticipated 2.5%. The core PPI (excluding food and energy) remained flat month-over-month, against last month's 0.5% rise and the expected 0.3%. Year-over-year, the core PPI increased by 2.3%, compared to the previous month's 2.5% and forecasts of 2.4%.

The market had similarly positive reactions the previous day to the Consumer Price Index (CPI) report, which measures retail inflation. The headline CPI increased by 3.3% year-over-year, slightly below last month's 3.4% and in line with expectations. The core CPI rose by 3.4% year-over-year, compared to the prior month's 3.6% and the forecasted 3.5%.

These reports signal a return to declining inflation after months of stagnation. However, the Federal Reserve remains cautious, seeking more consistent evidence of inflation moving towards its 2% target. The recent Federal Open Market Committee (FOMC) announcement emphasized this need.

Looking ahead, the upcoming Personal Consumption Expenditures (PCE) index report, the Fed's preferred inflation gauge, will be crucial. Should inflation continue to decline, the Fed may consider more aggressive rate cuts than the single cut currently projected for this year.

Despite the anticipation for rate cuts, the economy and markets are performing well without them. While traders and consumers might welcome lower rates, there is no immediate urgency.

In other news, weekly jobless claims rose by 13,000 to 242,000, surpassing the consensus estimate of 222,000. However, the four-week moving average was relatively stable at 227,000, up from the previous week's 222,250.

Today, we will see the release of Import and Export Prices and Consumer Sentiment data. Additionally, Fed policymakers Lisa Cook (Fed Governor) and Austan Goolsbee (President of the Federal Reserve Bank of Chicago) are scheduled to speak.

With one trading day remaining this week, all major indexes, except the Dow, are on track to close higher. The S&P 500 and Nasdaq have been the standout performers, buoyed by strong tech sector gains and the ongoing AI boom. Another all-time high close today would mark a full week of record closes for these indexes.

Market Mavericks

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