New York Stock Market Mixed Amid June CPI Slowdown and Tech Stock Decline... Sharp Drop in Treasury Yields

June CPI Increase Rate 3% YoY 'Below Expectations'
Persistent Housing Cost Rise Slows
Sharp Drop in Government Bond Yields Amid September Rate Cut Outlook
Housing-Related Stocks Rise

The three major indices of the U.S. New York stock market showed mixed trends in early trading on the 11th (local time). Although the consumer price index (CPI) inflation rate slowed for three consecutive months last month, fueling expectations of a rate cut in September, technology stocks declined, causing the S&P 500 and Nasdaq indices to weaken. Treasury yields fell sharply amid expectations that a pivot (policy shift) is approaching.

[Image source= Xinhua News Agency]

As of 10:28 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was up 0.08% from the previous close at 39,754.79. The large-cap-focused S&P 500 index was down 0.29% at 5,617.38, and the tech-heavy Nasdaq index was down 0.78% at 18,502.09.

Before the market opened, the U.S. Department of Labor announced that the June CPI rose 3% year-over-year. This was below both the forecast (3.1%) and the previous month’s figure (3.3%), continuing the slowdown for three consecutive months. On a month-over-month basis, the CPI fell 0.1%, missing the forecast of a 0.1% increase and the previous month’s flat reading (0%). The core CPI, which excludes volatile energy and food prices and reflects the underlying inflation trend, rose 0.1% month-over-month and 3.3% year-over-year. The year-over-year increase was the lowest in three months since April 2021. Both the market expectations (0.2% monthly, 3.4% yearly) and the previous month’s figures (0.2%, 3.4%) were exceeded. Gasoline prices contributed to the slowdown in CPI inflation by falling 3.8% month-over-month. Housing costs, which had persistently weighed on inflation, rose 0.2%, marking the smallest increase in two years and ten months since August 2021. Prices for new cars, used cars, and transportation services also declined.

Following the CPI release last month, expectations for a September rate cut quickly spread in the market, causing treasury yields to plunge. The U.S. 10-year Treasury yield, a global benchmark for bond yields, fell 8 basis points (bp; 1 bp = 0.01 percentage points) from the previous trading day to 4.19%, while the 2-year Treasury yield dropped 10 bp to 4.52%. Investors are increasing their bets on a September rate cut. According to the Chicago Mercantile Exchange (CME) FedWatch tool on the day, the federal funds futures market reflects an 87% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting, a sharp rise from 73.4% the previous day.

Anna Wong, an economist at Bloomberg Economics (BE), said, "Evidence that the labor market is cooling rapidly and the June inflation data will reinforce the Fed’s confidence that the timing for a rate cut is near," adding, "The Fed is expected to start cutting rates at the upcoming September FOMC meeting."

Skyler Waynand, Chief Investment Officer (CIO) at Reagan Capital, said, "With another positive CPI indicator, the door to a September rate cut has opened as early as September," and added, "If inflation data continues to be cooperative, there is a possibility of another cut in December."

Last week’s initial jobless claims, released on the day, did not show signs of labor market cooling, unlike previous weeks. According to the Department of Labor, initial jobless claims for the week of June 30 to July 7 totaled 222,000, the lowest level since the end of May, below both the expert forecast (236,000) and the revised figure for the previous week (239,000). Continuing claims, which count those claiming unemployment benefits for at least two weeks, stood at 1,852,000 for the week of June 23 to 29. This was below both the market forecast (1,860,000) and the revised figure for the previous week (1,856,000). Although continuing claims had increased for nine consecutive weeks to reach a 31-month high in the week of June 16 to 22, the upward trend has now eased.

By sector, housing-related stocks rose amid growing expectations of a September rate cut. Home Depot, the largest home improvement retailer in the U.S., was up 1.78%. U.S. homebuilder D.R. Horton jumped 5%. PepsiCo fell 1.45% after reporting earnings that missed market expectations. Nvidia, the leading artificial intelligence (AI) stock, dropped 2.52%.

International oil prices rose on rate cut expectations. West Texas Intermediate (WTI) crude oil was up $0.29 (0.4%) from the previous trading day to $82.39 per barrel, while Brent crude, the global benchmark, rose $0.27 (0.3%) to $85.35 per barrel.