Inflation Data Keeps Rate-Cut Bets Intact

• Stocks jumped higher as the latest CPI inflation data didn’t change outlooks on when the Fed will cut rates.
• Inflation was slightly hotter-than-expected, but investors consider Fed policy restrictive enough.
• Tech stocks led the surge, with Nvidia climbing over 6.6%.

Tech steered stock indexes higher on Tuesday, as fading inflationary fears drove investors back into markets.

The S&P 500 hit a new closing high as mega-cap names soared higher in the session, following February inflation data that did little to skew investors’ outlook for rate cuts to come in the middle of this year. 

Tuesday’s consumer price index just marginally topped expectations, and most still forecast the Federal Reserve to start cutting in the summer.

“As of now, markets expect the first cut to be in June,” Jeffrey Roach, Chief Economist for LPL Financial, wrote. “Despite the stickiness of inflation, current Fed policy is clearly restrictive.”

Inflation rose 0.4% for the month, and 3.2% year-over-year, the Bureau of Labor Statistics showed. That’s in line with expectations for the monthly figure, but slightly above the 3.1% expected for the annual reading. 

The month’s core inflation, which strips out more volatile food and energy prices, climbed 0.4%, against estimates of a 0.3% gain.

“With inflation coming in slightly hotter-than-expected, we think it’s a coin flip as to whether the Fed cuts interest rates in June or if it takes a more conservative approach and waits until September,” Skyler Weinand, Regan Capital chief investment officer, said. “The last mile of price stability is proving to be the hardest, and inflation was able to decelerate from 9% to 3% rather quickly, but the path to the Fed’s 2% target may take more time than expected.”

As investors jumped back into markets, mega-cap tech stocks were among the top gainers. Nvidia rose over 7%, while Meta and Microsoft, rose over 3% and 2.6%, respectively. 

Later this week, investors will be watching for the producer price index on Thursday. 

Here’s where US indexes stood at the 4:00 p.m. closing bell on Tuesday: 

Here’s what else is going on today: 

In commodities, bonds, and crypto: 

• Oil prices were nearly flat. West Texas Intermediate crude slid 0.33% to $77.69. Brent crude, the international benchmark, essentially stayed flat at $82.15 a barrel. 
• Gold dropped by 1.22% to $2,154.45 per ounce. 
• The 10-year Treasury yield rose 5.3 basis points to 4.157%.
• Bitcoin essentially stayed flat at $71,424.