New York Stock Market Recovers Investor Sentiment Amid Slowing Inflation... Early Session Gains

The three major indices of the U.S. New York stock market showed an upward trend in early trading on the 15th (local time) after confirming a slowdown in producer prices following consumer prices.

At around 10:05 a.m. at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average was trading at 34,911, up 0.24% from the previous close. The large-cap-focused S&P 500 index was up 0.27% at 4,508, and the tech-heavy Nasdaq index was up 0.31% at 14,137.

Currently, 10 of the 11 sectors in the S&P 500 are rising, excluding healthcare stocks. Retail giant Target is up more than 17% from the previous close after releasing better-than-expected quarterly results. Target’s Q3 earnings per share were $2.10, far exceeding analysts’ estimates of $1.48. TJX, the parent company of TJ Maxx, fell more than 3% despite better-than-expected results. Plug Power, which had been declining due to liquidity concerns, rose nearly 4%. JD.com is up more than 6% on the New York stock market, buoyed by better-than-expected earnings. Fashion company VF jumped about 14% after JP Morgan upgraded its investment rating from underweight to neutral.

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Investors are closely watching indicators such as the producer price index (PPI) and retail sales released before the market opened, following the consumer price index (CPI) for October, which came in below expectations the previous day. The October PPI, a wholesale price gauge, fell 0.5% month-on-month. Contrary to the Wall Street Journal (WSJ) consensus forecast of a 0.1% increase, it recorded a surprising decline. This drop is the largest since April 2020 (-1.2%). The October PPI also rose 1.3% year-on-year, significantly below the expected 1.9%.

Considering that wholesale price increases typically pass through to consumer prices later, this report is interpreted as a signal that inflationary pressures are continuously easing. With the inflation slowdown trend confirmed by both the CPI and PPI, expectations for the Federal Reserve (Fed) to end its tightening have gained further momentum. Ross Mayfield of Baird said, "The CPI has basically done everything the market needed," adding, "It confirms the disinflation trend and economic cooling, ultimately blocking the possibility of a Fed rate hike in December."

According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of this morning, federal funds futures fully price in the Fed holding rates steady at 5.25-5.5% not only at the December meeting but also in January next year. There is also a 26% chance that the Fed will start cutting rates as early as March.

Consumer spending, which has supported the U.S. economy, declined for the first time in seven months due to the cumulative effects of tightening. According to the Commerce Department, October retail sales were $705 billion, down 0.1% from the previous month. This is the first monthly decline since March. However, the decrease was less than the WSJ consensus forecast of -0.2%.

Retail sales account for two-thirds of the U.S. real economy and are considered a key indicator for assessing overall economic health. The market has widely analyzed that the delayed effects of cumulative tightening, inflation, depletion of excess savings post-pandemic, and rising credit card delinquencies will negatively impact the economy, leading to a more pronounced consumption slowdown starting in Q4.

Nationwide’s Chief Economist, Cash Bostanjic, said, "Due to slower income growth, depletion of excess savings, and tighter credit conditions, consumers’ willingness to spend will be limited." Ted Decker, CEO of Home Depot, which reported earnings yesterday, also noted that consumers have been cutting back on purchases in recent months. Earnings reports from Walmart and others are expected this week.

The easing of the shutdown fears that were anticipated this week is also positively influencing investor sentiment. Earlier, the U.S. House of Representatives passed an additional temporary budget bill to fund the federal government through January to February next year, likely averting the feared shutdown. The temporary budget bill is now awaiting review and approval in the Senate. Since bipartisan Senate leadership has expressed support, it is expected to pass smoothly unless unforeseen issues arise.

The budget bill, led by Republican House Speaker Mike Johnson, sets different budget exhaustion dates for each government department and notably excludes large budget cuts opposed by Democrats as well as contentious bipartisan issues such as aid packages for Ukraine and Israel.

Additionally, this afternoon, a face-to-face summit between U.S. President Joe Biden and Chinese President Xi Jinping is scheduled on the sidelines of the Asia-Pacific Economic Cooperation (APEC) meeting in San Francisco.

Despite economic indicators suggesting the Fed’s tightening is ending, U.S. Treasury yields are rebounding today. The benchmark 10-year Treasury yield is trading around 4.53%. The 2-year yield, sensitive to monetary policy, is at about 4.91%. The dollar index, which measures the dollar’s value against six major currencies, is up 0.4% at 104.4.

European stock markets are also rising. Germany’s DAX index is up 0.79%. France’s CAC index is up 0.43%, and the UK’s FTSE index is trading 0.84% higher.