[New York Stock Market] Mixed Close Digesting CPI... Nasdaq Up 0.29%

The three major indices of the U.S. New York stock market closed mixed near the flat line on the 13th (local time), digesting the August Consumer Price Index (CPI) data that exceeded expectations. Although inflation concerns resurfaced as the August headline CPI exceeded forecasts due to rising oil prices, the market had already anticipated a rebound driven by oil prices, and the upcoming Federal Reserve (Fed) interest rate decision next week was not expected to bring significant changes, preventing a major decline on the day.

At the New York Stock Exchange (NYSE) on the day, the blue-chip-focused Dow Jones Industrial Average fell 70.46 points (0.2%) from the previous close to 34,575.53. In contrast, the large-cap-focused S&P 500 rose 5.54 points (0.12%) to 4,467.44, and the tech-heavy Nasdaq index gained 39.96 points (0.29%) to close at 13,813.58.

Within the S&P 500, real estate, energy, industrials, materials, and financial sectors declined, while utilities, consumer discretionary, consumer staples, communication services, technology, and healthcare sectors rose. Moderna rose more than 3% from the previous close amid a recent resurgence of COVID-19 in the U.S. and the CDC's recommendation for an upgraded vaccine version. Investment bank Goldman Sachs gained over 1% as expectations for IPO activity increased ahead of semiconductor design company ARM's Nasdaq listing. Oracle rebounded by over 2% after falling more than 13% the previous day. Alphabet (Google) rose 1% following news of workforce reductions. Citigroup jumped nearly 1.7% after announcing its largest restructuring plan in about 20 years. On the other hand, 3M fell 5.7% from the previous close, and Caterpillar dropped more than 2%. Apple declined more than 1% further despite unveiling the new iPhone 15 series the previous afternoon.

[Image source=Reuters Yonhap News]

Investors closely watched inflation data ahead of next week's Federal Open Market Committee (FOMC) meeting. The August CPI data released before the market opened confirmed the recent impact of rising oil prices. According to the Department of Labor, the August CPI rose 3.7% year-over-year, slightly exceeding Wall Street's forecast of 3.6%. As initially expected, the pace of increase accelerated compared to July's 3.2%. The month-over-month increase was 0.6%, matching expert forecasts but also representing a larger rise than the previous month.

This is analyzed as a result of rising international oil prices leading to consumer price increases centered on gasoline. Gasoline prices jumped 10.6% from the previous month. These oil-driven inflation concerns are expected to be a variable in the Fed's interest rate decisions as it approaches the end of its tightening cycle. However, the core CPI, which excludes volatile energy and food prices, continued to slow, making a rate hold at the September FOMC meeting likely. The August core CPI rose 4.3% year-over-year, slowing from July's 4.7% increase. Month-over-month, it rose 0.3%.

Hugh Greaves, fund manager at Premier Milton US, told Bloomberg, "Although the headline inflation rate has increased, the Fed will be reassured by the easing core inflation," but added, "The Fed's concern is that rising energy prices may start to spread throughout the economy, reigniting core inflation worries by year-end and increasing the risk of further rate hikes." Shima Shah, chief global strategist at Principal Asset Management, said, "This is not inflation data that would tilt toward a rate hike in September. The rise in headline CPI is not surprising given recent oil price increases."

According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures markets on the afternoon of the day reflected over a 97% probability that the Fed will hold rates steady in September. The Wall Street Journal (WSJ) reported, "Fed officials had previously signaled a rate hold at the September FOMC, and today's CPI data will not change that outcome," adding, "The CPI briefly surprised investors, but those fears quickly subsided," describing the financial market sentiment.

Instead, the likelihood increased that the Fed will present a more hawkish dot plot and messaging at the FOMC meeting scheduled for the 19th-20th. Since March last year, the Fed has been in a tightening cycle, raising the U.S. benchmark interest rate to 5.25-5.5%, the highest level since 2001. The previously released dot plot suggested the possibility of one more rate hike by year-end, but the market had largely interpreted the Fed's hiking cycle as effectively over.

Greg Wilinski, head of U.S. fixed income at Janus Henderson Investors, said, "(August CPI) does not change expectations for a rate hold at the September FOMC, but it will influence the tone of (Fed Chair Jerome Powell's) press conference and the Summary of Economic Projections (SEP)." There are three remaining FOMC meetings this year: September, November, and December.

On the following day, the U.S. Producer Price Index (PPI) for August, a wholesale price gauge, will be released. Since wholesale price increases typically pass through to consumer prices, this data is also worth watching. Retail sales for August will also be announced on the same day. Wall Street expects that retail sales, which had rebounded earlier, may slow this time. On the 15th, the University of Michigan's consumer sentiment survey will be released.

In the New York bond market, the benchmark 10-year Treasury yield fell to around 4.25%, and the 2-year yield, sensitive to monetary policy, dropped to about 4.98%. The dollar index, which measures the dollar's value against six major currencies, remained near 104.7, flat. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," fell more than 5% to 13.4.

Despite warnings from the International Energy Agency (IEA) about supply shortages, oil prices closed lower on news of increased U.S. inventories. On the New York Mercantile Exchange, October delivery West Texas Intermediate (WTI) crude fell 32 cents (0.36%) to close at $88.52 per barrel. The increase in crude inventories for the first time in five weeks triggered profit-taking selling, applying downward pressure.