[New York Stock Market] Strong Rise Despite Unexpected CPI Increase... S&P 500 Hits Another Record High

February CPI and Core CPI Exceeded Expectations
Market Maintains June Rate Cut Outlook
NVIDIA Surges Over 7%

The three major indices of the U.S. New York stock market all closed higher on the 12th (local time), digesting the February Consumer Price Index (CPI) data that largely met market expectations. Although persistent inflation has led to forecasts that the Federal Reserve's (Fed) cautious stance on interest rate cuts will continue for the time being, investors believe that this CPI increase is not enough to change the outlook for a rate cut in June. Nvidia also surged more than 7%, driving the stock market higher. Treasury yields are on the rise.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 39,005.49, up 235.83 points (0.61%) from the previous trading day. The large-cap S&P 500 index closed at 5,175.27, up 57.33 points (1.12%), setting a new all-time high once again. The Nasdaq index ended the day at 16,265.64, up 246.36 points (1.54%).

The February CPI data, which did not significantly deviate from expert forecasts, drove the stock market gains. According to the U.S. Department of Labor, the February CPI rose 3.2% year-over-year, slightly exceeding the expert forecast of 3.1% and showing a larger increase than January's 3.1%. Month-over-month, it rose 0.4%, matching expectations. The core CPI, which excludes volatile energy and food prices and reflects the underlying inflation trend, increased 3.8% year-over-year and 0.4% month-over-month, both surpassing market expectations of 3.7% and 0.3%, respectively.

Rising housing costs and gasoline prices pushed the CPI higher. Housing costs, which account for 35% of the CPI weighting, rose 0.4% month-over-month, a smaller increase compared to January's 0.6%. Gasoline prices jumped 3.8% month-over-month, reversing January's 3.3% decline. The Department of Labor stated that 60% of the monthly CPI increase was due to rising housing and gasoline prices. Prices for used cars, clothing, auto insurance, and airfare also increased.

Charles Schwab's Chief Bond Strategist, Cash Jones, said, "February CPI is probably a reason why the Fed needs to maintain its policy for a longer period," adding, "Although there is volatility, inflation appears to be stabilizing its downward trend. The Fed will want to confirm that inflation is lower before cutting rates."

However, the analysis that the February CPI increase is not enough to change the outlook for a rate cut in June gained traction, reassuring investors. Eric Rosengren, former president of the Boston Federal Reserve Bank from 2007 to 2021, stated, "Basically, core inflation is gradually improving," and added, "As long as wages and salaries are declining, this report is unlikely to actually change the overall view on a rate cut in June."

The market continues to expect a rate cut in June. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day reflected nearly a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the June Federal Open Market Committee (FOMC) meeting, little changed from about 71% the day before.

With the February CPI release not significantly dampening rate cut expectations, tech stocks surged. Nvidia rose 7.16%. Microsoft (MS) and Meta increased by 2.66% and 3.34%, respectively. Oracle jumped 11.77% after reporting earnings that exceeded market expectations.

Skyler Vinand, Chief Investment Officer (CIO) at Reagan Capital, said, "It is natural to expect the market to cool down a bit," but added, "Earnings, inflation, and interest rates are moving in the right direction, so it is hard to know what might stop the market's momentum."

On the 14th, the Producer Price Index (PPI) will be released. The PPI is expected to rise 0.3% month-over-month and 1.1% year-over-year. On the same day, February retail sales are forecasted to have increased by 0.8% month-over-month, following a 0.8% decline in January.

Market attention is turning to the March FOMC meeting. It is closely watched what views Fed officials will express regarding the number of rate cuts this year. The key issue is whether they will maintain the forecast of three cuts within the year, as indicated at the December FOMC, or if opinions favoring two cuts will increase.

Treasury yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 5 basis points (bp) (1 bp = 0.01 percentage points) from the previous trading day to 4.15%, while the 2-year U.S. Treasury yield increased 5 bp to around 4.58%.

International oil prices are slightly down due to expectations of increased U.S. oil production. West Texas Intermediate (WTI) crude fell $0.37 to $77.56 per barrel, and Brent crude dropped $0.29 to $81.92 per barrel.