Equities gain on in-line US inflation, Treasury yields dip

All three indexes took a big dive at the outset, the Dow down 140 points at noon.  Then at noon, the entire market took off. It must have been right at noon that the PCE numbers came out. As is often the case, the smart money was all wrong as just yesterday the prediction was that unless there was a substantial dip in the data today, there would be a big sell off.  Instead, the PCE came in just slightly lower than expected which was taken as gleeful news that inflation continued to edge downward instead of upwards. 

The big morning sell off was no doubt predicated on the expectation that the PCE would be slightly upward. This very slight downward move triggered a big buying spree and a resurgence of optimism that a rate cut would still be coming in June.  It was also enough to bring the Nasdaq to a new record high not seen since November 2021. All three indexes had their fourth straight monthly gains. Volume came in way above average at 14 billion. 

Equities gain on in-line US inflation, Treasury yields dip

By Sinéad Carew and Marc Jones

Thu February 29, 2024 4:53 PM

DJ: 38,972.41  -96.82         NAS: 16,035.30  +59.05         S&P: 5,078.18  +8.65       2/27

DJ: 38,996.39  +47.37        NAS: 16,091.92  +144.18       S&P: 5,096.27  +26.51     2/29

NEW YORK/LONDON, Feb 29 (Reuters) - The S&P 500 and Nasdaq closed at record highs and the global equity index advanced on Thursday after a much anticipated U.S. inflation reading provided little surprise for relieved investors and helped push U.S. Treasury yields lower.  The Nasdaq registered a record closing high for the first time in more than two years as Wall Street rebounded from the previous session's decline, which was due to investor jitters ahead of the U.S. personal consumer expenditures (PCE) price index data.  But in the end, the PCE data, which is the Federal Reserve's preferred inflation gauge, showed the smallest annual increase in inflation in nearly three years, keeping the possibility of a June interest rate cut from the Fed on the table.

"Today's market movements really reflect a relief that we aren't seeing a re-acceleration in inflation. That's impacted fixed income markets as well as equity markets," said Sid Vaidya, U.S. wealth strategist at TD Wealth.  Investors had been particularly anxious ahead of the PCE data after the most recent consumer price index (CPI) and the producer price index (PPI) data were hotter than expected.  "Markets are actually heaving a bit of a sigh of relief that we didn't get the same type of upside surprises we saw in the earlier inflation readings," said Mona Mahajan, senior investment strategist at Edward Jones in New York.

The Dow Jones Industrial Average (.DJI), opens new tab rose 47.37 points, or 0.12%, to 38,996.39, the S&P 500 (.SPX), opens new tab gained 26.51 points, or 0.52%, to a record closing high of 5,096.27.  The Nasdaq Composite (.IXIC), opens new tab gained 144.18 points, or 0.90%, to end at a peak of 16,091.92. Its previous record close was 16,057.44, hit in November 2021.  For the month, the S&P rose 5.17% while Nasdaq gained 6.12% and the Dow increased 2.22%, with all three registering their fourth straight monthly gains. It was the S&P's longest streak of monthly gains since the five months ending July 2023.

MSCI's gauge of stocks across the globe (.MIWD00000PUS), opens new tab was also eyeing a record close as it rose 2.73 points, or 0.36%, to 760.86.  The STOXX 600 <.STOXX> index had ended unchanged while the German DAX (.GDAXI), opens new tab climbed 0.4% to a fresh all-time high after data showed cheaper energy prices slowed inflation down to 2.7% in February.

 

    Inflation 

Elsewhere in Europe, French consumer prices rose at a slower pace but slightly higher than forecasts, while in Spain annual inflation dropped but was in line with expectations.  In U.S. Treasuries, the yield on benchmark U.S. 10-year notes fell 0.6 basis points to 4.268%, from 4.274% late on Wednesday while the 30-year bond yield fell 2.2 basis points to 4.3884%. The 2-year note yield, which typically moves in step with interest rate expectations, was roughly flat at 4.6477% compared with 4.648% late Wednesday.

In currencies, the dollar index, which measures the greenback against a basket of major currencies, regained lost ground after earlier easing following the data, which soothed worries that price pressures could be seeing a renewed uptick.

In commodities, oil prices slipped after U.S. data sent mixed signals about the outlook for crude demand from the world's top economy.  U.S. crude settled down 0.36% to $78.26 a barrel and Brent finished at $83.62 per barrel, down 0.07%.

Per the CBOE, volume came in way above average at 14 billion.