Spencer Platt
U.S. stocks on Wednesday extended their gains from the previous session to end higher, after further economic data showed a fall in inflation amid a fairly resilient economy and strengthened hopes for a soft landing.
The advance was much smaller compared to Tuesday’s broad-based rally that was sparked by a cooler-than-expected consumer inflation report and short covering.
The tech-heavy Nasdaq Composite (COMP.IND) climbed 0.07% to close at 14,103.84 points. The benchmark S&P 500 (SP500) added 0.16% to settle at 4,502.88 points, while the blue-chip Dow (DJI) rose 0.47% to finish at 34,991.21 points.
Of the 11 S&P sectors, seven ended in positive territory, led by Consumer Staples and Communication Services. Energy, Utilities, Technology and Consumer Discretionary were the four losers.
Treasury yields were higher, after tumbling the previous day. The longer-end 30-year yield (US30Y) was up 6 basis points to 4.68%, while the 10-year yield (US10Y) was up 9 basis points to 4.53%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 10 basis points to 4.91%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
A day after a soft consumer price index (CPI) report bolstered bets that the Federal Reserve was done hiking rates and would instead cut next year, Wednesday’s producer inflation data continued to support that view. The headline producer price index (PPI) unexpectedly dipped 0.5% in October, compared to a predicted rise of 0.1%. Core PPI, which excludes food and energy, was unchanged M/M versus an expected increase of 0.3%.
Moreover, retail sales in October fell, but not as much as feared, pointing to continued resilience in consumer spending. The headline number inched down 0.1% M/M compared to the consensus for a fall of 0.3%.
Meanwhile, Empire State’s survey of business activity showed that manufacturing activity increased in New York State in November, with the general business conditions index rising to 9.1, its highest reading since April. Additionally, September business inventories rose 0.4%, in-line with expectations.
With inflation showing continued signs of decline as well as consumer spending remaining resilient and the economy staying strong, hopes have risen that the Fed will be able to deliver a soft landing.
“Markets seem optimistic because of inflation data that is better than anticipated and a 0.1% drop in October retail sales (compared to a 0.2% decline anticipated by analysts) caused there to be some hope of a soft landing for the economy that would involve no additional interest rate hikes or perhaps only one additional one,” Daniel Jones, investing group leader of Crude Value Insights, told Seeking Alpha.
Turning to Wednesday’s active movers, Target (TGT) ended as the top percentage gainer on the S&P 500 (SP500). The big-box retailer delivered a quarterly top and bottom line beat, helped by a solid reduction in its inventory.
Conversely, off-price retailer TJX (TJX) ended among the top S&P percentage losers, after its guidance for the all-important holiday quarter disappointed.
“In a sign that the economy is still going strong, retailer Target (TGT) surged more than (17%) thanks to robust financial results for its latest quarter. Although shares declined by over 3%, another retailer, TJX Companies (TJX), reported better than expected earnings. An ideal scenario would be one in which the consumer remains strong but inflationary data still comes in weaker. And that is what the data recently released seems to indicate is happening to some extent,” Crude Value Insights’ Jones added.
