New York Stock Market Declines Early Amid CPI Exceeding Expectations

The three major indices of the U.S. New York stock market are showing a downward trend in the early trading session on the 11th (local time) due to the stronger-than-expected December Consumer Price Index (CPI) impact.

At around 10:50 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was trading at 37,524, down 0.45% from the previous close. The S&P 500 index, which focuses on large-cap stocks, was down 0.49% at 4,759, and the tech-heavy Nasdaq index was down 0.52% at 14,891.

Currently, all 10 sectors of the S&P 500, except for energy-related stocks, are declining. Apple is also recording a nearly 1% drop today. Apple has continued its weakness this year and temporarily lost its position as the largest market capitalization to Microsoft on this day. Tesla fell more than 3%. Coinbase and Robinhood are each down 2-3% as investors assess the impact of the U.S. Securities and Exchange Commission (SEC) announcement after the previous day's market close approving a Bitcoin spot ETF. Citigroup, which is scheduled to announce earnings the next day, fell more than 2% on warnings that quarterly losses may occur due to the decline of the Argentine peso and restructuring costs. Lyft dropped more than 3% after Goldman Sachs downgraded its investment rating from buy to neutral. Google Alphabet rose slightly on news of cutting hundreds of employees in its engineering and hardware divisions.

[Image source=Reuters Yonhap News]

Investors are digesting the December CPI released before the market opened and trying to gauge the future direction of the Federal Reserve's (Fed) monetary policy. Thanks to the cumulative effects of monetary tightening, the CPI inflation rate, which had shown a disinflation trend, rose 3.4% year-over-year due to still-high housing costs. This exceeds both the previous month's increase (3.1%) and Wall Street's forecast (3.2%). It is also the highest figure in three months since September last year, when it recorded 3.7%. The December CPI also rose 0.3% month-over-month, surpassing Wall Street's forecast of 0.2%. However, the core CPI, which excludes the volatile energy and food sectors, rose 3.9% year-over-year and 0.3% month-over-month, continuing a slowing trend.

With the December CPI inflation rate rebounding to the mid-3% range, the Fed's dilemma ahead of potential rate cuts is expected to deepen. Anna Wong, an economist at Bloomberg Economics, evaluated, "The surprisingly strong CPI figure for December shows that returning to the 2% inflation target will be challenging and that the last mile may be difficult." John Meyer, Chief Investment Officer at GlobalX, said, "This CPI rebound is an important signal reminding us that economic recovery predictions are unpredictable and macroeconomic data is uncertain," adding, "The Fed may potentially strengthen or maintain its restrictive monetary policy stance in response to these inflationary pressures."

The unemployment data released on the same day also reaffirmed a still-robust labor market. According to the Department of Labor, initial jobless claims for the week of December 31 to January 6 decreased by 1,000 from the previous week to 202,000. This is below Wall Street's forecast of 210,000. However, local media assessed that the increase in labor demand during the year-end and New Year holidays may have partially influenced this. Continuing jobless claims, which count those applying for unemployment benefits for at least two weeks, decreased by 34,000 from the previous week to 1,834,000.

John Williams, President of the New York Federal Reserve Bank, known as the third most influential Fed official, acknowledged recent disinflation progress in a speech the day before but emphasized, "We are still far from the target (2%). To fully achieve the target, it is necessary to maintain a restrictive policy stance." He pointed out that inflation in the service sector remains high, unlike in raw materials and commodities. However, the personal consumption expenditures (PCE) price index, which the Fed considers more important than the CPI, continued to slow to 2.6% as of November last year, supporting expectations for an early rate cut. The producer price index (PPI), a wholesale price indicator, will be released the next day.

Despite growing caution that recent market expectations for rate cuts are overly optimistic, the interest rate futures market still favors a rate cut scenario in March. According to the Chicago Mercantile Exchange (CME) FedWatch, even after the CPI announcement on this day, the interest rate futures market reflects about a 67% probability that the Fed will cut rates by 0.25 percentage points or more in March.

Along with this, the next day will mark the start of the earnings season on Wall Street, with major banks such as JPMorgan, Wells Fargo, and Citigroup releasing their earnings. UnitedHealth Group and Delta Air Lines will also announce earnings on the same day. According to FactSet, the net income of S&P 500-listed companies for the fourth quarter of last year is estimated to have increased by 1.3% year-over-year, marking two consecutive quarters of growth.

In the New York bond market, the benchmark 10-year U.S. Treasury yield is moving around 4.02%, and the 2-year yield, which is sensitive to monetary policy, is at 4.32%. The dollar index, which measures the value of the dollar against six major currencies, rose about 0.2% to 102.6. Bitcoin prices are up more than 2% following the SEC's approval of the Bitcoin spot ETF announcement the previous afternoon. At one point during the session, it surpassed $49,000. Ethereum is also up more than 6%.

European stock markets are also down. Germany's DAX index fell 0.67%, the UK's FTSE index dropped 0.74%, and France's CAC index recorded a 0.34% decline.