[New York Stock Market] Big Tech Rally on Wholesale Price Cooling... Nasdaq Up 1.99%

The three major indices of the U.S. New York stock market all closed higher on the 13th (local time) as additional signals confirmed that inflationary pressures are easing. In particular, a rally centered on big tech stocks sensitive to interest rates was prominent.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,029.69, up 383.19 points (1.14%) from the previous session. The S&P 500, which focuses on large-cap stocks, recorded 4,146.22, up 54.27 points (1.33%), marking its highest level since February. The tech-heavy Nasdaq index closed at 12,166.27, up 236.93 points (1.99%).

All 10 sectors of the S&P 500, except real estate, rose. Notably, rallies were confirmed in telecommunications, technology, and consumer discretionary stocks. Netflix closed up 4.58% after Wells Fargo expressed optimism about the company's earnings. Amazon rose 4.67% after CEO Andy Jassy stated in the annual shareholder letter that Amazon Web Services is committed to cost reduction and technology investment. Representative big tech stocks such as Apple (+3.41%), Tesla (+2.97%), Alphabet (+2.67%), and Meta Platforms (+2.97%) also showed rallies.

Meanwhile, Delta Air Lines fell more than 1% due to earnings below Wall Street expectations. Harley-Davidson dropped 1.74% following UBS's analysis that first-quarter retail sales could decline by more than 20% compared to a year ago. Bed Bath & Beyond, known as a representative meme stock, also fell more than 8%. WW International, the parent company of Weight Watchers, continued its rally by rising more than 13% after Goldman Sachs upgraded its investment rating earlier this week.

[Image source=Reuters Yonhap News]

Investors are digesting the Consumer Price Index (CPI) and the minutes of the March FOMC regular meeting released the previous day, while also examining key indicators released on the day such as the Producer Price Index (PPI) and weekly initial jobless claims to gauge future economic outlook and the Federal Reserve's policy path.

The U.S. March PPI, released before the market opened, fell 0.5% month-over-month, marking the largest drop since April 2020. Compared to a year ago, the PPI increase narrowed to the high 2% range. This figure not only fell short of Wall Street's forecast (3.0%) but also showed a clear slowdown compared to the previous month's increase (4.9%). Considering that wholesale price increases are eventually passed on to consumer prices, this figure is interpreted as a signal that inflationary pressures have eased.

The Wall Street Journal (WSJ) described it as "an encouraging sign that the Federal Reserve is making progress in the fight against inflation." CNN reported that "March wholesale prices showed a dramatic cooling." The previously released March CPI rose 5% year-over-year, marking the lowest increase since May 2021 (5.0%).

With the trend of easing inflationary pressures confirmed in both CPI and PPI, expectations are growing that the Fed's rate hike cycle is nearing its end. The Fed, which declared war on inflation, began raising rates in March last year and has since pushed the U.S. benchmark interest rate to 4.75-5.0%. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market currently reflects more than a 66% probability that the Fed will take a 0.25 percentage point baby step rate hike in May. The market expects a pause in June and the highest possibility of a rate cut in July.

New employment data suggesting that the labor market overheating, which the Fed has been concerned about, is cooling also emerged. The weekly initial jobless claims released on the day reached the highest level since January last year. According to the U.S. Department of Labor, last week's initial jobless claims totaled 239,000, an increase of 11,000 from the previous month. This is the highest figure since January last year and slightly exceeded market expectations (232,000). Continuing claims, which represent those applying for unemployment benefits for at least two weeks, decreased by 13,000 to 1.81 million.

Rye Williams of Spouting Rock Asset Management analyzed, "The PPI figures were significantly better than expected," adding, "It provided relief in that the Fed does not need to raise rates at the next meeting." However, Megan Horneman of Burdens Capital Advisors cautioned, "The market may be too optimistic, thinking the Fed could cut rates. I don't believe the Fed will do that. They might cut next year, but we are still in a very sticky inflation environment."

Goldman Sachs stated that the probability of a recession is only 35%, much lower than the 65% consensus expected by Wall Street. Although recession forecasts increased after the Silicon Valley Bank (SVB) collapse, the risk of further turmoil in the banking sector has diminished. Goldman Sachs Chief Economist Jan Hatzius said, "There have been no additional bankruptcies, bank lending has peaked, and deposit outflows have subsided," evaluating that "the banking crisis risk has sharply decreased." The minutes of the March FOMC released by the Federal Reserve the previous afternoon included content suggesting that a mild recession could begin by the end of this year, considering the potential economic impact of the banking sector.

On the following day, earnings reports from major banks such as JPMorgan Chase, Citi, and Wells Fargo are scheduled. CNBC emphasized, "As the earnings season kicks off in earnest, the U.S. economy and consumer health will be put to the test." Attention will also focus on any management messages regarding loan regulations and credit tightening triggered by the SVB incident.

In the New York bond market on the day, U.S. Treasury yields fluctuated around levels similar to the previous session. The 10-year U.S. Treasury yield hovered around 3.44%, while the 2-year yield, sensitive to monetary policy, moved around 3.97%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear index," fell more than 6% from the previous session to the 17 level.

Gold, a representative safe-haven asset, is approaching an all-time high. Gold futures prices reached $2,054.9 per ounce during the session, marking a more than 12% increase since the beginning of the year. The U.S. dollar continued its weakness. The Dollar Index, which shows the value of the dollar against six major currencies, was about 0.5% lower than the previous session, standing around 101.

Oil prices fell for the first time in three trading days due to profit-taking. On the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) crude oil closed at $82.16 per barrel, down $1.10 (1.32%) from the previous session.