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After trading mixed for most of Thursday, U.S. stocks finally finished higher thanks to a late-session boost. The advance was enough to help the Nasdaq Composite (IND COMP.) recorded a new closing record, more than two years since he set the previous brand.
Today's advance came after market participants digested a key leap day economic report that showed slow but steady progress against inflation. The Federal Reserve's favorite price indicator was in line with estimates. Still, the indicator hit its highest monthly reading in almost a year, underscoring the rigid nature of current inflation trends.
The tech-heavy Nasdaq (COMP.IND) advanced 0.90% to settle at 16,091.92 points, a new historical closing peak. The previous mark had been set on November 19, 2021. The S&P 500 benchmark index (SP500) added 0.52% to finish at 5,096.27 points, while the blue-chip Dow (dji) rose 0.12% to conclude at 38,995.93 points.
Of the 11 S&P sectors, nine finished in green.
Before the start of regular operations, the US Bureau of Economic Analysis released the January personal income and spending report. The data showed that the core personal consumption expenditure (PCE) price index, the Fed's preferred inflation gauge, rose 0.4% month-on-month, matching the estimate of +0.4% but accelerating from the increase of 0.1% observed in December 2023. In addition, the figure was the highest since February of last year.
On a year-over-year basis, the underlying PCE price index was +2.8%, also in line with estimates and cooling slightly from the +2.9% increase in December.
Following more positive-than-expected consumer and price inflation reports earlier this month, today's PCE data painted a mixed picture. On the one hand, the readings could have been much higher than expected, and the fact that the core PCE was in line with the consensus was probably a relief. The slight slowdown on an annualized basis will also be welcomed and will be seen as slow but steady movement towards the Federal Reserve's 2% inflation target. On the other hand, the data reinforced concerns that inflation remains rigid.
According to the CME FedWatch tool, the PCE data resulted in a slight uptick in market expectations for rate cuts. The odds of a 25 basis point rate cut in May have risen to around 23% from 18% the previous day.
“Today's PCE data was exactly as expected, reducing fears of a resurgence in inflation. As a result, rate-sensitive segments such as real estate and technology performed well. Furthermore, it must be said that “The market is now in line with the Federal Reserve's expectations of about 80 basis points of cuts in 2024. This means we are now back to June being the first month of a possible rate cut,” said Leo Nelissen, part of the group iREIT investor in Alpha, a Looking for Alpha.
“However, as long as consumer spending remains strong and we receive no signs of a recession, the Federal Reserve is not likely to relent quickly. After all, the Treasury has provided so much liquidity in recent quarters that it almost amounts to QE partial, benefiting “Risk assets such as technology/growth and crypto. Therefore, I continue to bet on value stocks as the weakest in this market,” Nelissen added.
Treasury yields were largely lower on Thursday. The 30-year (US 30-year) yield fell 2 basis points to 4.39%, while the 10-year (US 10-year) yield was little changed at 4.27%. The more rate-sensitive short-term 2-year yield (US2Y) was steady at 4.65%.
See how Treasury yields have performed across the curve on the Seeking Alpha bonds page.
In active stocks, Dow 30 component Salesforce (CRM) closed higher as Wall Street praised the cloud-based software company's quarterly results and guidance.
