Jamie Spencer
Wall Street Gains as Producer Inflation Cools, Fed Policy Eyed
U.S. stock markets climbed on Tuesday after a softer-than-expected producer inflation report provided some relief for investors, easing concerns about the Federal Reserve’s monetary policy trajectory for the year. The Labor Department reported a 3.3% annual rise in the Producer Price Index (PPI) for December 2024, slightly below the 3.4% forecast by economists. On a monthly basis, the index rose 0.2%.
Stocks respond to cooling inflation
The slightly lower inflation reading helped boost equities, with key indexes advancing:
- The Dow Jones Industrial Average gained 131.20 points, or 0.31%, reaching 42,428.32.
- The S&P 500 rose 21.84 points, or 0.37%, to 5,858.06.
- The Nasdaq Composite climbed 122.50 points, or 0.64%, to 19,209.39.
- The Russell 2000, which tracks small-cap stocks, jumped 1%.
Among megacaps, Nvidia and Amazon gained 1.2% and 1.4%, respectively. Consumer discretionary stocks led the S&P 500 sectors, rising 1.4%, fueled by Tesla’s 4% surge.
Fed rate cuts and bond yields
Traders are now pricing in 29.4 basis points of rate cuts by the Federal Reserve for 2025, down from the central bank’s earlier projection of 50 basis points. Despite the positive inflation report, the yield on the 10-year Treasury note remains elevated at 4.79%, near a 14-month high, which continues to temper equity gains.
“It was a positive report for the overall equity market and the bond market,” said Robert Pavlik, senior portfolio manager at Dakota Wealth. However, he noted the increase in gasoline and food prices as a concerning trend.
Upcoming economic and corporate catalysts
Investors are eagerly awaiting Wednesday’s Consumer Price Index (CPI) report, which will provide additional clarity on inflation trends. Additionally, quarterly earnings reports from major banks later this week are expected to reflect robust dealmaking and trading activity, with the S&P 500 bank index up 0.5% on Tuesday.
Comments from Kansas City Fed President Jeffrey Schmid and New York Fed President John Williams, both voting members of the Federal Open Market Committee, are also expected later in the day.
Market reaction to policy news
A report suggesting that President-elect Donald Trump’s incoming administration is considering gradual tariff hikes has further fueled inflation concerns. The proposed plan could increase import duties by 2% to 5% monthly, potentially impacting U.S. trade relations and price stability.
Corporate winners and losers
- Applied Digital soared 16% after Macquarie announced plans to take a 15% stake in the company and invest up to $5 billion in its AI data centers.
- Eli Lilly dropped 8.2% following disappointing sales guidance for its weight-loss drug and related diabetes treatments, dragging the healthcare sector down by 1.3%.
Advancing stocks outnumbered decliners by a 3.46-to-1 ratio on the NYSE and 2.23-to-1 on the Nasdaq. The S&P 500 recorded six new 52-week highs, while the Nasdaq Composite saw 27 new highs and 41 new lows.
Wall Street’s modest gains on Tuesday reflect investor optimism about cooling producer inflation and the possibility of less aggressive Federal Reserve policy adjustments. However, elevated Treasury yields, rising energy prices, and concerns about future tariff policies suggest that markets will remain sensitive to upcoming economic data and policy decisions.
