HomeBusinessWall Street Traders Hold Their Breath for CPI: Markets Close

Wall Street Traders Hold Their Breath for CPI: Markets Close

(Bloomberg) — Stocks bounced around all day, with traders unwilling to make any significant bets as they waited for key inflation data for clues about the path of Federal Reserve interest rates.

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After several twists and turns in the run-up to the consumer price index, the S&P 500 finished 0.1% higher. While most stocks advanced, the big tech sector came under renewed pressure. Options traders are gearing up for the U.S. stock benchmark’s busiest CPI day since March 2023. The index is expected to move 1% in either direction on Jan. 15 based on the cost of at-the-money puts and calls, according to Stuart Kaiser at Citigroup Inc.

“All eyes are now on Wednesday’s CPI report, which may be the most important inflation reading in recent memory, as it will fuel Fed-obsessed sentiment in the market,” said SWBC’s Chris Brigati. “A strong inflation rate adds to the idea of ​​no cuts in 2025 and possibly even a rate hike, while weak inflation data could help calm Fed fears in the market.”

Data on Tuesday showed the producer price index unexpectedly cooled in December, helped by a drop in food costs and flat services prices. Still, several components that contribute to the Fed’s preferred measure of inflation – its measure of personal consumption expenditure – were actually mixed in December.

“This means the Fed and markets will not benefit from particularly favorable PPI inputs into PCE, as was the case in November,” Evercore’s Krishna Guha said. “In the very short term, this leaves markets exposed (in both directions) to Wednesday’s CPI report.”

The S&P 500 closed above its 100-day moving average after briefly falling below it. The Nasdaq 100 fell 0.1%. The Dow Jones Industrial Average rose 0.5%. A gauge for the “Magnificent Seven” megacaps fell 1%. The Russell 2000 of small companies gained 1.1%. Homebuilders rose after KB Home’s profit decline. Eli Lilly & Co. fell by 6.6% due to disappointing sales.

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The yield on 10-year government bonds was little changed at 4.78%. The dollar fell after Bloomberg News reported that Donald Trump’s new economic team is considering gradual increases in rates to help prevent a spike in inflation.

Oil fell from a five-month high as Hamas and Israel agreed to a tentative ceasefire, cooling a rally fueled by risks to Russian and Iranian supplies.

Underlying US inflation likely cooled only slightly at the end of 2024 amid a resilient labor market and a steadfast economy, supporting the Fed’s slow approach to further rate cuts.

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