[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market closed higher on the 27th (local time) following news that the inflation indicator monitored by the Federal Reserve (Fed) eased.
On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,978.08, up 28.67 points (0.08%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 10.13 points (0.25%) to 4,070.56, and the tech-heavy Nasdaq index closed at 11,621.71, up 109.30 points (0.95%).
By sector, discretionary consumer goods, real estate, telecommunications, and technology-related stocks within the S&P 500 showed rallies. Tesla, a representative tech stock, surged more than 10% again following the previous day. Electric vehicle maker Lucid soared 43% on news that Saudi Arabia’s sovereign wealth fund may purchase the remaining shares to take the company private.
On the other hand, Intel, which reported disappointing earnings after the previous day’s close, fell more than 6% from the previous session. Chevron dropped over 4%. Toy manufacturer Hasbro fell more than 8% after forecasting a 17% decline in sales.
Investors focused on the personal consumption expenditures (PCE) price index, the inflation indicator preferred by the Fed, and corporate earnings announcements ahead of the Federal Open Market Committee (FOMC) meeting scheduled for next week.
According to the U.S. Department of Commerce, the PCE price index for December last year rose 5.0% compared to the same month the previous year. This marked a clear slowdown from the 5.5% increase in November and was the smallest rise in 15 months. The PCE price index, which approached 7% in June last year, has steadily declined over the past six months and is now approaching the 4% range.
The core PCE price index, which excludes volatile energy and food prices, rose 4.4% year-over-year and 0.3% month-over-month. This level met Wall Street analysts’ expectations. The core PCE price index, which the Fed regards as the most accurate inflation gauge, also recorded its smallest increase in 14 months.
This is interpreted as a result of stabilized energy prices, which had surged due to Russia’s invasion of Ukraine early last year, and the visible effects of the Fed’s monetary tightening.
Consumers’ short-term inflation expectations also declined. The University of Michigan’s median one-year inflation expectation for January was 3.9%, down from 4.4% the previous month, marking a four-month consecutive decline.
However, concerns about a recession due to the Fed’s tightening have also increased. Personal consumption expenditures in December, released on this day, turned to a decline. According to the Department of Commerce, December personal consumption expenditures fell 0.3% from the previous month, with spending on goods plunging 0.9%. This was below Wall Street’s expectations. The November figure, initially reported as a 0.1% increase, was revised downward to negative.
Investors’ attention is focused on next week’s FOMC. Given the recent series of indicators confirming signs of easing inflation, the market expects the Fed to narrow the rate hike to 0.25 percentage points at this FOMC. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects over a 99% probability of a 0.25 percentage point rate hike in February.
There are also views that the Fed could halt rate hikes as early as spring. Earlier, the Wall Street Journal (WSJ) reported that the Fed’s rate hikes are nearing the end, and discussions about when to stop raising rates could take place at this meeting. Ahead of the Fed, the Bank of Canada recently signaled a pause in hikes, becoming the first major central bank to do so. The market’s concern that excessive monetary tightening could cause an unnecessary recession is also a burden for the Fed.
Oil prices fell ahead of the ministerial monitoring committee (JMMC) meeting of the Organization of the Petroleum Exporting Countries Plus (OPEC+) scheduled for next week. On the New York Mercantile Exchange, the March delivery price of West Texas Intermediate (WTI) crude oil closed at $79.68 per barrel, down $1.33 (1.64%) from the previous session.
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