S&P 500 Hits Record High In Run-Up To CPI Report: Markets Wrap

Wall Street traders gearing up for key inflation data sent stocks to fresh all-time highs. Treasuries retreated while the dollar notched its longest winning run in more than two years.

On the eve of a report expected to show consumer prices continued to moderate, the S&P 500 approached 5,800. The gauge hit its 44th record in 2024, with tech shares once again leading the charge. Apple Inc. climbed 1.7%. Nvidia Corp. halted a five-day rally. Tesla Inc. edged lower ahead of the Robotaxi launch. Alphabet Inc. fell 1.5% on news the US is weighing a Google breakup in a historic big-tech antitrust case.

Major technology stocks have undergone volatility in both directions of late, but weakness represents an attractive buying opportunity, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.

“We remain positive on the tech sector as well as the outlook for artificial intelligence,” and “against this backdrop, we believe volatility should be utilized to build long-term AI exposure,” she said.

Markets barely budged after minutes of the latest Federal Reserve gathering, which showed Jerome Powell received some pushback on a half-point rate cut in September, as some officials preferred a smaller reduction.

“Today’s Fed minutes were pretty ‘ho-hum,’ which could actually be a good thing for stock investors,” said David Russell at TradeStation. “Policymakers agree inflation is fading and they see potential weakness in job growth. That keeps rate cuts on the table if needed. The bottom line is that Powell might have the market’s back headed into the year end.”

The S&P 500 rose 0.7%. The Nasdaq 100 added 0.8%. The Dow Jones Industrial Average climbed 1%.

The yield on 10-year Treasuries advanced five basis points to 4.06%. The Bloomberg Dollar Spot Index rose 0.4% — up for an eighth straight session. Oil held steady as US crude inventories swelled and traders monitored China’s plans for fiscal policy.

US inflation probably moderated at the end of the third quarter, reassuring a Fed that’s shifting more of its policy focus toward shielding the labor market.

The consumer price index is seen rising 0.1% in September, its smallest gain in three months. Compared with a year earlier, the CPI probably rose 2.3%, the sixth-straight slowdown and the tamest since early 2021. The gauge excluding the volatile food and energy categories, which provides a better view of underlying inflation, is projected to rise 0.2% from a month earlier and 3.2% from September 2023.

“The Fed’s decision to shift its focus from inflation to the labor market means that inflation data, including tomorrow’s CPI, is likely to become less market-moving than it had been,” said Matthew Weller at Forex.com and City Index. “Despite that logical observation, this month’s CPI report may still drive market volatility coming on the back of Friday’s stellar jobs report, a reading that hints at the potential for renewed upside risks to inflation.”

A survey conducted by 22V Research shows that 42% of investors expect the market reaction to CPI to be “mixed/negligible,” 32% said “risk-off” and only 25% think “risk-on.”

“There is optimism about inflation generally,” said Dennis DeBusschere, founder of 22V. He also noted that the share of investors expecting a recession has fallen while the percentage of those who believe financial conditions need to tighten hit the highest since June.

For the bull run in stocks to continue, inflation needs to continue to ebb, the economy needs to make a soft landing and Corporate America’s earnings growth needs to remain strong and broaden, according to Ed Clissold at Ned Davis Research.

While Saturday marks the two-year anniversary of the bull-market, a crucial piece of the current rally that’s been missing for much of the past few years — broader breadth — may juice the next leg higher for share gains. 

Large caps and growth shares have historically outperformed in the third year of a bull market, but they are currently overbought versus small-cap companies and value equities, Clissold noted.

Meantime, billionaire investor Bill Gross says the rally that’s helped US stocks almost double in value over the past five years is tapering off, and investors should expect low but positive returns on their investments. 

He recommends keeping exposure to the stock market at average levels, while focusing portfolios more on defensive stocks with a small position in bonds. 

“No bear market, but it’s not the same bull market anymore,” Gross, the co-founder and former chief investment officer of Pacific Investment Management Co., wrote.