[New York Stock Market] Broad Decline Ahead of CPI Release... Alphabet and Tesla Up

Taking a Breather Ahead of November CPI Release Next Day
Expected 3.3% Increase YoY... PPI to Be Released on the 12th
Alphabet Rises 5.3% on Google Quantum Computer Development
Tesla Up 2.9%, Approaching Record High

The three major indices of the U.S. New York Stock Exchange all closed lower on the 10th (local time). With the November Consumer Price Index (CPI) announcement, which will influence the Federal Reserve's (Fed) December interest rate decision, scheduled for the next day, investors' caution heightened, leading the market to take a 'breather.'

On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 44,247.83, down 154.1 points (0.35%) from the previous trading day. The large-cap-focused S&P 500 index fell 17.94 points (0.3%) to 6,034.91, and the tech-heavy Nasdaq index dropped 49.45 points (0.25%) to 19,687.24.

By individual stocks, Alphabet, Google's parent company, surged 5.32%. The stock soared after Google announced the development of a quantum computer that solved a problem expected to take a supercomputer ten years in just five minutes. Tesla rose 2.87%, closing at $400.99 per share, nearing its all-time high ($409.97 on November 4, 2021). This is attributed to Morgan Stanley raising Tesla's target price from $310 to $400 and recommending an 'overweight' rating, naming it the 'top pick' in the automotive sector.

Oracle plunged 6.67% after releasing quarterly results that fell short of market expectations. Nvidia dropped 2.55% the previous day following news of an antitrust investigation in China and fell another 2.69% on this day. AMD declined 2.39%. Following Bank of America's (BoA) downgrade of AMD's investment rating from 'buy' to 'neutral,' which caused a 5.57% drop the previous day, the stock continued its weakness.

Sam Stovall, Chief Investment Strategist at CFRA Research, said, "The market is narrowing, and investors are watching to see if this trend is simply the traditional seasonal weakness in mid-December." He added, "Investors expect market participation to expand again after a year-end rally."

The main market focus this week is the Consumer Price Index (CPI) announcement on the 11th. Last month's CPI is expected to have risen 0.3% month-over-month and 3.3% year-over-year, maintaining the same level as October. The Producer Price Index (PPI) for November, to be released the following day on the 12th, is expected to have increased 0.3% month-over-month and 2.5% year-over-year, showing a wider rise compared to October's 0.2% and 2.4%, respectively.

Craig Johnson, Market Strategist at Piper Sandler, advised, "As investors take some profits ahead of inflation data, upward momentum is weakening. However, the main upward trend remains intact thanks to the bull market, so use this correction as a buying opportunity."

The market is pricing in a high possibility of an interest rate cut this month. The November nonfarm payrolls report released on the 6th showed an increase of 227,000 jobs, stronger than the expected 202,000, but not enough to derail rate cut expectations. The unemployment rate rose from 4.1% in October to 4.2% in November. Unless the November CPI spikes significantly, the Fed is widely expected to implement a small cut (0.25 percentage points) this month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day reflected an 85.8% probability that the Fed will cut rates by 0.25 percentage points at the December Federal Open Market Committee (FOMC) meeting. The chance of holding rates steady is 14.2%.

However, there is a 67.5% probability that rates will be held steady in January next year after this month's small cut. This is why some expect the Fed's rate cut this month to be a 'hawkish (monetary tightening-preferred) cut.'

Government bond yields are on the rise. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 3 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.23%, while the 2-year Treasury yield, sensitive to monetary policy, increased 2 basis points to 4.14%.