Mid-Week Market Minute 12.11.24

CPI Meets Expectations; Stocks Rebound

Stocks rebounded in early Wednesday trading from losing days in the prior two sessions, as investors were encouraged by the Consumer Price Index (CPI) inflation data that met expectations and cleared the way for a probable Federal Reserve rate cut at their policy meeting next week. November’s CPI showed a 0.3% month-over-month rise and a 2.7% increase from a year ago. Core CPI increased 0.3% on the month and 3.3% on an annual basis. After the release of the data, according to the CME FedWatch tool, Fed funds futures were pricing in a 95% chance of a 25 bp (0.25%) rate cut at next week’s final policy meeting of the year. If the Federal Reserve cuts rates next week, the committee will have lowered the funds rate by a full percentage point since September, to the anticipated target range of 4.25%-4.5%. Market participants now are pricing in an additional 2-3 rate cuts for next year, as the Fed continues to measure the impacts the cuts will have on the economy and employment as they continue the process to bring inflation down to their 2% target. 

In other economic data, the NFIB Small Business Optimism Index rose eight points to 101.7, the highest reading since June 2021. On the productivity front, the third-quarter Productivity and Costs report showed an unexpected drop from 1.9% to 0.8% in unit labor costs, which is a wage inflation proxy. On Thursday, investors will get another look at an inflation reading in the form of Producer Price Index (PPI), as headline and core PPI are expected to report at 2.6% and 3.2%, respectively, on an annualized basis. 

Source: GSAM, CNBC, JPMorgan, FactSet

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