[New York Stock Market] Mixed Reactions Despite Higher-than-Expected CPI... MS Briefly Tops Market Cap During Trading

The three major indices of the U.S. New York stock market closed mixed on the 11th (local time) near the flat line. Despite a stronger-than-expected December Consumer Price Index (CPI), bond yields fell, resulting in little significant movement in stock prices. Apple continued its weakness and briefly lost its position as the largest market cap company to Microsoft (MS) during the session.

On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 15.29 points (0.04%) from the previous close to finish at 37,711.02. The large-cap-focused S&P 500 index fell 3.21 points (0.07%) to 4,780.24. The tech-heavy Nasdaq index closed up 0.54 points (0.00%) at 14,970.18.

Among the S&P 500 sectors, all nine sectors except technology and energy declined. Apple also closed slightly down. It briefly lost the top market cap spot to MS during the session. Tesla dropped nearly 3%. Google Alphabet initially rose on news of staff layoffs but then turned lower. Coinbase and Robinhood fell more than 6% and 3%, respectively, as investors monitored the impact of Bitcoin spot ETF trading. Citigroup, which is set to report earnings the next day, fell nearly 2% after warning of potential quarterly losses due to the Argentine peso depreciation and restructuring costs. Lyft closed slightly down after Goldman Sachs downgraded its rating from buy to neutral.

[Image source=AFP Yonhap News]

Investors digested the December CPI released before the market opened to gauge the future direction of the Federal Reserve's (Fed) monetary policy. According to the Labor Department, the December CPI rose 3.4% year-over-year, still elevated due to high housing costs. This exceeded both the previous month's increase (3.1%) and Wall Street's forecast (3.2%). It was also the highest reading in three months since September last year, when it was 3.7%. On a monthly basis, December CPI rose 0.3%, surpassing the Wall Street forecast of 0.2%. Core CPI, which excludes volatile energy and food prices, increased 3.9% year-over-year and 0.3% month-over-month, continuing a slowing trend.

Quincy Crosby of LPL Financial said, "Today's CPI report suggests that the Fed's first rate cut may come later than the market expects." Anna Wong, an economist at Bloomberg Economics, analyzed, "The surprisingly strong December CPI figure shows that returning to the 2% inflation target will be challenging and that the last mile could be difficult."

This could affect the pace of the Fed's policy easing, which had indicated the possibility of three rate cuts this year through the dot plot. Loretta Mester, president of the Federal Reserve Bank of Cleveland and a leading hawk within the Fed, dismissed market expectations of a first rate cut in March during an interview with Bloomberg TV immediately after the CPI release.

President Mester said, "March is probably too early to expect a rate cut," adding that "more evidence (on inflation easing) is needed." Mester, who holds a voting seat on this year's FOMC, has consistently advocated for the possibility of further rate hikes over the past two years. She said, "The December CPI report shows there is more work to do," and added, "This will be a restrictive monetary policy."

On the same day, Thomas Barkin, president of the Federal Reserve Bank of Richmond, assessed that the December CPI was "about as expected." He noted that while goods inflation has eased, service inflation remains sticky. He said, "There is still a disconnect between goods and services," and that broader improvements are needed to be confident that inflation is moving toward the 2% target. He refrained from making a judgment on the possibility of a rate cut in March.

The unemployment data released on the same day also confirmed a still-robust labor market. According to the Labor Department, initial jobless claims for the week ending January 6 fell by 1,000 to 202,000, below the Wall Street forecast of 210,000. However, local media noted that increased labor demand during the year-end and New Year period may have partially influenced the figures. Continuing claims, which count those receiving unemployment benefits for at least two weeks, decreased by 34,000 to 1,834,000.

Nevertheless, the market still favors a rate cut scenario in March. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the futures market currently prices in over a 70% chance that the Fed will cut rates by at least 0.25 percentage points in March. The personal consumption expenditures (PCE) price index, a key inflation gauge monitored by the Fed, slowed to 2.6% as of November last year, supporting expectations for an early rate cut. The producer price index (PPI), a wholesale price gauge, is scheduled for release the next day.

Additionally, the next day marks the start of the earnings season on Wall Street, with major banks such as JPMorgan, Wells Fargo, and Citigroup set to report results. UnitedHealth Group and Delta Air Lines will also release earnings on the same day. Sam Stovall, chief investment strategist at CFRA, said, "Earnings are adding to investor anxiety," diagnosing that the market was affected not only by Fed monetary policy outlooks but also by concerns surrounding earnings. Major banks including Citigroup and Bank of America (BoA) showed broad weakness.

In the New York bond market, the benchmark 10-year U.S. Treasury yield hovered around 3.97%, while the 2-year yield, sensitive to monetary policy, traded near 4.25%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady around 102.3.

Bitcoin prices rose over 1% on the first day of trading for Bitcoin spot exchange-traded funds (ETFs). It briefly surpassed $49,000 during the session before trimming gains. Ethereum also showed gains of over 6%. Following the U.S. Securities and Exchange Commission's (SEC) approval of Bitcoin spot ETF listings and trading the previous day, 11 Bitcoin spot ETFs, including BlackRock's iShares Bitcoin Trust, began trading on the New York stock market.

Oil prices rose on news of Iran's seizure of an oil tanker. On the New York Mercantile Exchange, West Texas Intermediate (WTI) crude for February delivery closed up 65 cents (0.91%) at $72.02 per barrel.