U.S. stocks ended higher Tuesday, with the S&P 500 and the Nasdaq Composite logging their highest finishes since April 2022, after inflation data reinforced expectations the Federal Reserve will refrain from raising interest rates on Wednesday, while China’s central bank eased its monetary policy.
How stocks traded
- The Dow Jones Industrial Average DJIA, +0.43% ended 145.79 points, or 0.4% higher, to 34,212.12, marking the sixth consecutive trading day of gain, according to Dow Jones market data. It is the longest winning streak for the index since another six-day run that ended on Jan. 27.
- The S&P 500 SPX, +0.69% finished up 30.08 points, or 0.7%, at 4,369.01, the highest close since April 21, 2022.
- The Nasdaq Composite COMP, +0.83% advanced 111.40 points, or 0.8%, to 13,573.32, the highest close since April 19, 2022.
On Monday, the S&P 500 and Nasdaq Composite closed at almost 14-month highs, while the Dow also advanced.
What drove markets
The U.S. consumer-price index rose 0.1% in May, with the year-over-year rate of inflation slowing to 4% from 4.9% in April, the lowest level since March 2021.
The so-called core rate of inflation that omits food and energy rose a stiffer 0.4%. Wall Street had forecast a 0.4% gain. The increase in the core rate over the past 12 months slipped to 5.3% from 5.5%, also the smallest gain since the fall of 2021. The headline and core readings were all in line with the average forecasts produced by a survey of economists by The Wall Street Journal.
The Federal Reserve views the core rate as a better predictor of inflation trends.
Such a decline in price pressures could help the Federal Reserve leave interest rates unchanged after its policy meeting Wednesday, a scenario that has contributed to a sturdy equity market rally of late.
“The CPI data has shown clearly that the Fed needs to take summer off now with respect to their monetary policy…In simple terms, it seems like there is less wood to chop for the Fed as inflation begins to cool down,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.
After the data, fed-funds futures showed traders priced in a better-than-90% expectation policy makers will leave rates unchanged on Wednesday, according to the CME FedWatch tool. The market had priced in a 79.1% probability on Monday.
Still, “if the Fed doesn’t see increased signals of weakness in core prices soon, it may be pushed to increase interest rates further” in future meetings, according to Eugenio Aleman, chief economist at Raymond James.
Meanwhile, if the Fed does pause its interest rate hike on Wednesday, “it won’t be surprising” to see some pullback of stocks, especially if the Fed officials stay hawkish in their statements, according to James Ragan, director of wealth management research at D.A. Davidson.
It is important to watch Wednesday what Fed officials, including Fed Chairman Jerome Powell, say about recent economic data and the path of the key policy rate by the end of this year, noted Ragan.
Adding to the tailwinds for stocks, China eased monetary policy amid reports of more stimulus to come.
Hong Kong’s Hang Seng Index HSI, -0.07% climbed 0.6%, while Japan’s Nikkei 225 NIK, 0.82% rose 1.8% to hit a fresh 33-year high, and industrial commodities like oil CL.1, 0.04% and copper HG00, 0.00% gained ground on hopes of more demand from the world’s second-biggest economy.
Companies in focus
- Oracle Corp. shares ORCL, +0.21% rose 0.2%, after the database company reported earnings and said AI customers have already signed contracts for more than $2 billion in new business.
- Apple Inc. AAPL, -0.26% shares fell 0.3% following three consecutive trading sessions of gains that saw a Monday close at a record high of $183.79. Apple shares were downgraded to neutral from buy at UBS.
- Home Depot Inc. HD, -0.26% shares dipped 0.3%, after the home improvement retail giant affirmed the full-year earnings outlook it provided last month.
- Manchester United shares MANU, +13.76% jumped 13.8% following a report from Qatar’s Al-Watan that Qatar’s Sheikh Jassim bin Hamad al-Thani will soon be announced as the preferred bidder.