Stock Market Update

[BRIEFING.COM] The S&P 500 (+0.8%) and Nasdaq Composite (+1.8%), which closed above 20,000 for the first time, settled near their session highs. The Russell 2000 (+0.6%) also logged a gain while the Dow Jones Industrial Average fluctuated around its previous close, settling 0.2% lower. Market breadth was broadly positive, reflecting a fairly broad advance, but gains in mega-cap stocks had a disproportionate impact on the S&P 500 and Nasdaq Composite.

Big winners in the mega-cap space included Amazon.com (AMZN 230.26, +5.22, +2.3%), Alphabet (GOOG 196.71, +10.18, +5.5%), Meta Platforms (META 632.68, +13.36, +2.2%), and Tesla (TSLA 424.77, +23.78, +5.9%), all of which hit new record highs today.

Investors are reacting to the November Consumer Price Index (CPI) report, which met expectations and reinforced the market's anticipation of an upcoming rate cut. Total CPI moved higher on a year-over-year basis to 2.7% from 2.6% and core CPI was at 3.3%, which is still above the Fed's 2% inflation target.

The likelihood of a 25 basis point rate cut by the FOMC next week increased. According to the CME FedWatch tool, the probability of a 25 basis point cut stands at 94.9%, up from 88.9% yesterday and 78.1% last week.

Treasury yields initially dropped after the CPI release, but the decline moderated. The 2-year yield fell to 4.12% from 4.17%, and settled the session at 4.16%. The 10-year yield dipped to 4.23% from 4.25%, but settled the cash session at 4.27%.

Earnings reports from several companies since yesterday's close sparked mixed reactions from investors. GameStop (GME 28.97, +2.04, +7.6%) and Stitch Fix (SFIX 6.64, +2.04, +44.4%) were standout winners, with their shares soaring following quarterly results. On the other hand, Macy's (M 16.58, -0.14, -0.8%) and Dave & Buster's (PLAY 29.41, -7.39, -20.1%) logged declines after disappointing earnings reports or guidance.

Other story stocks included General Motors (GM 52.04, -0.70, -1.3%), which traded lower after announcing it will cease funding Cruise's robotaxi development, and GE Vernova (GEV 343.80, +16.41, +5.0%), which raised its FY25 revenue guidance while reaffirming its FY24 revenue and free cash flow outlook.

• Nasdaq Composite: +33.5% YTD
• S&P 500: +27.6% YTD
• S&P Midcap 400: +19.1% YTD
• Russell 2000: +18.1% YTD
• Dow Jones Industrial Average: +17.1% YTD

Reviewing today's economic data: 

• Weekly MBA Mortgage Applications Index 5.4%; Prior 2.8%
• November CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, November Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
  • There are two key takeaways from the report. The first is that the report wasn't worse than feared. It was right in-line with expectations; therefore, it did not upset the market's view that the Fed will cut rates another 25-basis points at next week's FOMC meeting. The second key takeaway is in the breakdown of the shelter index (+0.3%), which included the smallest increases for owners' equivalent rent (+0.2%) and the index for rent (+0.2%) since April 2021 and July 2021, respectively. With the lag effect of shelter costs on CPI computations, assumptions are being made that this variable will continue to factor favorably in future CPI reports and help temper future inflation readings.
• Weekly EIA crude oil inventories had a draw of 1.43 million barrels; prior draw of 5.07 million barrels 
• The Treasury Budget for November showed a deficit of $366.8 billion compared to a deficit of $314.0 billion in the same period a year ago. The November deficit resulted from outlays ($668.5 billion) exceeding receipts ($301.8 billion). The Treasury Budget data are not seasonally adjusted so the November deficit cannot be compared to the October deficit of $257.5 billion.
  • The key takeaway from the report is its worsening condition, which was driven in part by a large outlay for net interest that exceeded the outlay for national defense.

Looking ahead to Thursday, market participants receive the following data:

• 8:30 ET: November PPI (Briefing.com consensus 0.3%; prior 0.2%), Core PPI (Briefing.com consensus 0.2%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 220,000; prior 224,000), and Continuing Claims (prior 1.871 mln)
• 10:30 ET: Weekly natural gas inventories (prior -30 bcf)