Stocks rallied Tuesday despite a worse-than-expected inflation report, perhaps defying conventional wisdom as stubbornly high inflation could cause a delay for growth-favorable interest rate cuts, though experts suggest the contradictory movement makes sense.
Sometimes you have to throw your hands up - stocks gained Tuesday despite a hot inflation reading.
The S&P 500 gained 1.1%, the tech-heavy Nasdaq rose 1.6% and the Dow Jones Industrial Average rose 0.6%, or 240 points.
That rally comes despite the key consumer price index’s morning release revealing worse-than-forecasted rises to headline and core inflation, seemingly a strange development considering sticky inflation would throw a wrench in the much-desired rate cuts and last month’s hotter-than-anticipated inflation report sent the Dow to its steepest daily loss in 11 months.
So, why the dissonance? Tom Lee, head of research at boutique firm Fundstrat Global Advisors, explained to CNBC the “hot” inflation reading coupled with the robust gains marking a “rip the band aid moment” for markets, hypothesizing the market is “discounting” the notion the overall inflation numbers “look worse” than the reality of the economic situation.
The overall composition of Tuesday’s consumer prices report was “disinflationary” as the “sharp normalization” in the more volatile services categories, excluding rent, backs the notion of rate cuts at the Federal Reserve’s June meeting, Goldman Sachs economists explained in a note to clients.
Massive technology stocks once again led the charge Tuesday, as shares of Microsoft, Nvidia, Amazon and Meta each gained more than 2%.
Those names received a boost from the strong earnings results delivered Tuesday by cloud computing giant Oracle, whose shares rallied 11% to an all-time high as the company touted its “enormous” potential in artificial intelligence.
“The inflation experience is a bit like the concentration in the equity markets right now,” LPL Financial’s chief economist Jeffrey Roach remarked in emailed comments, likening the outsized influence from rent and gas prices’ on inflation to the impact of the gains from trillion-dollar stocks like Nvidia on stock market indexes.
The bond market, which more directly moves with traders’ expectations for interest rates, did not enjoy the same post-CPI positive momentum its stock market counterpart did. Yields for 2-year and 10-year U.S. government bonds jumped for than five basis points apiece, indicating a growing belief the Fed will hold interest rates higher for longer (higher bond yields indicate a decline in value for the asset class).
Also sitting on the sidelines Tuesday were shares of embattled aerospace firm Boeing and those of its commercial aircraft clientele. Boeing’s stock slipped more than 4% to a five-month low, and shares of American Airlines (down 5%), Southwest Airlines (down 15%) and United Airlines (down 2%) slid.
$15 billion. That’s how much richer Oracle’s chairman and largest individual shareholder Larry Ellison grew Tuesday, according to Forbes’ calculations. Ellison’s fortune swelled by the most of any billionaire’s Tuesday, topping the single-digit billion gains to the net worths of fellow tech bigwigs like Meta CEO Mark Zuckerberg and Nvidia CEO Jensen Huang.