On Thursday, the U.S. stock market finished with an increase, continuing its upward trend due to the release of data indicating a decrease in consumer prices during December.
This has led to speculation that the Federal Reserve may not need to raise interest rates as aggressively. The report revealed that consumer prices in the U.S. experienced their first decline in over 2 and a half years in December, which could be a sign that inflation is now consistently decreasing.
U.S. stocks closed higher, extending recent gains, as data showing a fall in consumer prices in December bolstered expectations of less aggressive interest rate hikes from the Federal Reserve https://t.co/RINhaBxqTw pic.twitter.com/qDQZqXhHUE
— Reuters (@Reuters) January 13, 2023
Gary Bradshaw, a portfolio manager from Hodges Capital Management in Dallas, Texas, stated that many investors are viewing the decrease in inflation as a positive development. He also expressed optimism that the upcoming earnings reports from significant U.S banks on Friday, which marks the beginning of the fourth-quarter earnings season for S&P 500 companies, will be favorable.
The market fluctuated after the release of the Consumer Price Index (CPI) data. Despite high rents being reported in the data and the tight labor market, inflation is still above the Federal Reserve’s target. However, another report released on Thursday indicated a decrease in the number of weekly jobless claims.
Future projections of US economy
Some analysts believe that this slowdown in inflation in the U.S. could allow the Fed to decrease consumer prices without greatly impacting economic growth. Traders’ predictions of a 0.25% rate hike by the Federal Reserve in February rose to 91% after the data release, up from 77% before the release.
Microsoft’s shares saw an increase of 1.2%, making it the biggest contributor to the growth of the S&P 500 and Nasdaq.
Additionally, energy shares also improved along with the rise in oil prices. The energy sector had the best performance of the day, increasing by 1.9%. The Dow Jones Industrial Average increased by 216.96 points, or 0.64%, reaching 34,189.97. The S&P 500 had a gain of 13.55 points, or 0.34%, reaching 3,983.16. The Nasdaq Composite also added 69.43 points, or 0.64%, to reach 11,001.11. Overall, the S&P 500 has grown 3.7% so far this year.
According to Peter Cardillo, chief market economist at Spartan Capital Securities in New York, the Consumer Price Index (CPI) report confirms that inflation is decreasing and has changed its direction. However, Philadelphia Fed President Patrick Harker and St. Louis Fed President James Bullard acknowledged the decrease in prices but emphasized the need for additional monetary policy tightening to bring inflation down to the Federal Reserve’s target.
In December, the Federal Reserve increased the key interest rate by 0.5%, following four consecutive increases of 0.75%. It is expected that major U.S. banks will report decreased profits for the fourth quarter due to the banks’ accumulation of funds to prepare for a potential economic downturn.