New York Stock Market Rebounds After 'CPI Shock' Recovery...Strong Earnings and Bargain Buying Inflows

Government bond yields remain steady... Focus on Fed officials' remarks

The three major indices of the U.S. New York stock market showed an upward trend in early trading on the 14th (local time). This follows a sharp drop the previous day due to the January Consumer Price Index (CPI) increase and delayed interest rate cut expectations, with investors focusing on corporate earnings and fundamentals leading to bargain buying. U.S. Treasury yields are moving at elevated levels after a sharp rise the previous day, with the 10-year yield at 4.3% and the 2-year yield at 4.6%.

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As of 9:37 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was up 0.15% from the previous trading day, standing at 38,330.59. The large-cap-focused S&P 500 index rose 0.47% to 4,976.3, and the tech-heavy Nasdaq index climbed 0.68% to 15,761.58.

By individual stocks, Lyft surged nearly 35% on strong fourth-quarter earnings. Although it gave back a significant portion of its after-hours gains due to an error in this year's earnings forecast disclosed in the previous day's report, it still showed strength. Uber, which announced a $7 billion share buyback, was also up more than 8%. Airbnb, despite beating market expectations in earnings, fell nearly 5.3%.

The previous day, the New York stock market fell across the board after the U.S. January CPI rose 3.1% year-over-year, exceeding market expectations of 2.9%. The Dow Jones Industrial Average dropped 1.35%, marking its largest decline in 11 months since March last year, falling 524.63 points. The S&P 500 and Nasdaq indices also fell 1.37% and 1.8%, respectively. Disappointment over the Federal Reserve's interest rate cut timing being pushed to June or July led to heavy selling. Fed Chair Jerome Powell repeatedly emphasized after last month's Federal Open Market Committee (FOMC) meeting that further evidence of inflation slowing is needed. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on the day priced in a 38% chance of a rate cut of at least 0.25 percentage points in May, down sharply from 63% a week ago. The probability of the Fed starting rate cuts in June rose from 37% to 52%, and the chance of starting in July jumped from 6% to 33%.

However, optimism about the stock market is resurfacing due to strong corporate earnings announced after market close.

Terry Sandborn, chief equity strategist at U.S. Bank Asset Management, said, "While the January CPI increases the likelihood that rate cuts will be delayed until the second half of 2024, the market rally is not over. The previous day's decline allowed stock valuations to align better with fundamentals. This correction will provide an opportunity for investors seeking reasonable valuations to enter the market."

Some also expect that the Fed still has the possibility of cutting rates three to four times within the year.

Russ Koesterich, portfolio manager at BlackRock, the world's largest asset manager, said, "Despite the previous day's correction, this year should be a decent year for U.S. stocks. We still believe the Fed will start cutting rates in late spring or summer and may cut rates three to four times this year."

Amid the market volatility caused by the CPI shock, the remarks scheduled for the day by Austan Goolsbee, president of the Federal Reserve Bank of Chicago, are also a key point to watch. Attention is focused on what evaluation Goolsbee will provide regarding the January CPI and the future interest rate path.

U.S. Treasury yields, which surged the previous day, are moving sideways. The U.S. 10-year Treasury yield, a global bond yield benchmark, is trading at 4.31%, and the 2-year Treasury yield, sensitive to monetary policy, is at 4.62%.

International oil prices are slightly rising on OPEC's demand growth outlook and news of U.S. inventory declines. West Texas Intermediate (WTI) crude rose $0.05 (0.06%) to $77.92 per barrel, and Brent crude increased $0.12 (0.14%) to $82.89 per barrel.