Wall Street recorded modest gains on Thursday, extending a rally seen the previous session, as investors bet new inflation statistics will allow the Federal Reserve to slow the pace of its interest rate hikes.
“Today’s market action was all about the inflation numbers,” analyst Leo Nelissen told Seeking Alpha. “Market participants are now pricing in just two more 25 basis point rate hikes, which means the market believes that the Federal Reserve will soon change its outlook.”
He added that “the market is playing a dangerous game,” with inflation only coming down in select areas, like energy and vehicle prices, while other areas, like wages and housing, “remain major issues the Fed will be forced to address to avoid a 1970s-style inflation rebound.”
Nelissen concluded: “This means the market has priced in a lot. Any hawkish comments from the Fed or a reiteration of its outlook could be bad news for bulls.”
Thursday’s gains followed the release of closely watched consumer price statistics, which showed an as-expected slowing of inflation in December. Investors took the data as confirmation that the Fed would raise interest rates by 25 basis points at its next meeting.
According to the CME FedWatch tool, the markets are now pricing in a 96% probability of a 25 bps hike, compared to the 77% probability that was seen prior to the data release.
Specifically, the headline CPI slowed to a 6.5% annual increase in the month, compared to the 7.1% seen in the prior reading. The core figure, which excludes the volatile food and energy sectors, showed a 5.7% rise, exactly matching projections.
Among active stocks, Taiwan Semiconductor (TSM) rose following the release of its quarterly results. While the company missed projections with its revenue figure, investors focused on its Street-beating bottom line.
Authore – Abhi bhardwaj