Stocks rise as traders dial back Federal Reserve’s bets on CPI

BLOOMBERG

Wall Street got some encouragement to keep pushing stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign on Wednesday.
That’s not to say investors are betting the Fed is done with its interest-rate hikes just yet. While swap traders lowered their wagers on a June increase to about 10%, they still see a July move as likelier than not.
Tuesday’s inflation data brought something for both the doves and the hawks. The consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis. But a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.
“Market expectations are too settled on the pause at this point and the Fed will not want to surprise investors,” said Jim Smigiel, chief investment officer at SEI. “However, with core still running with a 5-handle, the next move from the Fed is another hike in July and perhaps one more after that (which is not priced in at this point).”
The S&P 500 rose for a fourth consecutive day, on pace for its longest winning run since early April. Oracle Corp jumped towards a record after saying the company’s cloud-computing business will continue its rapid growth in the coming fiscal year. Treasury two-year yields, which are more sensitive to imminent Fed moves, were little changed. The dollar halted a two-day advance.
Bank of Americ (BofA) Corp’s latest global survey of fund managers showed investors are “exclusively long” tech stocks amid the buzz around artificial intelligence. Long Big Tech was the most-crowded trade, according to 55% of the participants, the strongest conviction since 2020.
Still, fund managers remain broadly underweight on stocks as sentiment — measured by cash levels, economic growth expectations and asset allocation — remains “stubbornly low,” BofA strategist Michael Hartnett wrote in a note. Investors cut equity allocation to a five-month low.
European Central Bank President Christine Lagarde holds press conference following the rate decision on Thursday. US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, on Thursday.
The S&P 500 rose 0.7% in New York. The Nasdaq 100 rose 0.8%. The Dow Jones Industrial Average rose 0.6%. The Stoxx Europe 600 rose 0.6%. The MSCI World index rose 0.9%. The Bloomberg Dollar Spot Index fell 0.4%. The euro rose 0.5% to $1.0806. The British pound rose 0.8% to $1.2613. The Japanese yen fell 0.3% to 139.95 per dollar.
Bitcoin was little changed at $25,906.33. Ether fell 0.1% to $1,736.96. The yield on 10-year Treasuries advanced five basis points to 3.78%. Germany’s 10-year yield advanced three basis points to 2.42%. Britain’s 10-year yield advanced nine basis points to 4.43%. West Texas Intermediate crude rose 3.6% to $69.53 a barrel. Gold futures fell 0.3% to $1,964 an ounce.