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U.S. stocks rose higher as traders digested October inflation data that was in line with estimates.
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Consumer prices rose 2.6% year-on-year last month and 0.2% this month.
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Traders have increased their bets on another Fed rate cut in December by a quarter point.
U.S. stocks moved higher on Wednesday as traders noted new inflation figures that were in line with economists’ expectations. Major indexes rose in early morning trading, while bond yields fell.
Consumer prices rose by 0.2% in October and by 2.6% year-on-year. The increase was slightly higher than last month’s 2.4% price growth but in line with expectations, leaving investors hopeful that the Federal Reserve would cut interest rates at its December meeting.
Expectations for a new interest rate cut of 25 basis points in December became increasingly concrete. According to CME’s FedWatch tool, markets are pricing in an 82% chance that the Fed will cut its target rate by another quarter point, down from 59% yesterday.
“Given nervousness around the more inflationary aspects of Trump’s policy proposals, markets appeared poised for an upside inflation surprise today,” Seema Shah, chief global strategist at Principal Asset Management, said in a note. “A reduction for December is still planned,” she added.
Still, the rise in headline inflation makes the prospects for future Fed cuts uncertain, said Skyler Weinand, Regan Capital’s chief investment officer.
“With Wednesday’s CPI in line with expectations but still stubbornly above the Fed’s 2% target, the Fed may have only one rate cut left in December before pausing its easing trajectory,” he said. Weinand in a note.
He continued: “The incredible movement in the stock market after the election has effectively eased financial conditions for stock investors. This easing, combined with the upcoming fiscal stimulus, could justify a pause in Fed rate cuts in the near future so the dust can settle. and to process more incoming data.”
Assets included in the Trump Trade appeared to remain in focus on Wednesday, with shares of Tesla rising as much as 3%, while Dogecoin rose 4% after Elon Musk was appointed co-head of Trump’s newly created Department of Government Efficiency, along with with entrepreneur Vivek Ramaswamy.
Here’s where US indexes stood shortly after the 9:30 a.m. opening bell on Wednesday:
