Overview
On Wednesday, U.S. stock markets ended mixed as inflation data came in as expected, reinforcing bets on a potential interest rate cut by the Federal Reserve in December. The Dow Jones Industrial Average rose 0.11% while the S&P 500 gained a modest 0.02%, driven by strength in consumer discretionary stocks. However, the Nasdaq Composite dropped 0.26% due to declines in tech shares. October’s Consumer Price Index (CPI) reported a 0.2% monthly increase and a 2.6% annual increase, aligning with forecasts and easing investor concerns about inflationary surprises.
This steady inflation data increased the likelihood of a 25-basis point rate cut by the Fed next month, with the probability rising to over 82% from 58.7% earlier this week. The 2-year U.S. Treasury yield fell sharply after the inflation report, though the 10-year yield climbed back to 4.46% as investors looked to the potential long-term inflationary effects of President Trump’s pro-business policies. Consumer discretionary stocks outperformed, buoyed by optimism around rate cuts and fiscal support. Meanwhile, shares of Spirit Airlines plunged 59% after reports of an impending bankruptcy filing, while Rivian jumped 13.7% on Volkswagen’s increased investment in the EV maker.
- Dow Jones Industrial Average: Rose 0.11% to 43,958.19
- S&P 500: Gained 0.02% to 5,985.38
- Nasdaq Composite: Declined 0.26% to 19,230.74
Fear & Greed Index
Neutral – With inflation data steady and rate cut expectations intact, investor sentiment was balanced.
Sector Performance
- Winners:
- Consumer Discretionary: Driven by rate-cut optimism, the sector gained over 1% as investors focused on growth potential in discretionary spending.
- Utilities: Modest gains as defensive stocks saw steady demand amid mixed market conditions.
- Losers:
- Technology: The sector declined, with rising bond yields putting pressure on tech shares in the Nasdaq.
- Airlines: Spirit Airlines led the declines, plummeting after news of potential bankruptcy proceedings.
Key Movers
- Spirit Airlines (SAVE): Plummeted 59% on reports of preparing for bankruptcy protection.
- Rivian (RIVN): Jumped 13.7% following Volkswagen’s increased stake, boosting optimism around EV stocks.
- Tesla (TSLA): Declined slightly as investors took profits after recent gains driven by expectations of deregulatory policies.
Economic Data
- Consumer Price Index (CPI): Rose 0.2% in October, marking a 2.6% increase year-over-year, consistent with forecasts.
- Treasury Yields: The 2-year yield dropped sharply, while the 10-year yield regained ground, closing at 4.46% as inflation and rate cut expectations balanced.
Outlook
With inflation data in line with expectations, investor focus remains on the Federal Reserve’s upcoming December meeting, where a rate cut is increasingly anticipated. Fed officials, while supportive of rate adjustments, have maintained caution, aiming to avoid reigniting inflation. Economic outlooks remain mixed, with some concerns that the pro-business policies under Trump’s administration could fuel inflation over time, necessitating a more hawkish Fed response.
In the near term, consumer discretionary stocks are likely to see continued strength as lower interest rates support spending. However, tech and growth-sensitive sectors may experience volatility if bond yields continue to rise. Investors will also watch developments in emerging sectors like electric vehicles, especially following Rivian’s gains, as fiscal policy and rate changes shape market sentiment into year-end.
