Stock Market Update

[BRIEFING.COM] The S&P 500 (+0.5%) and Nasdaq Composite (+1.2%) closed higher, propelled by buy-the-dip interest in the mega cap space. The gain in NVIDIA (NVDA 115.74, +6.99, +6.4%) was a big help in that regard. 

Buyers were cautious elsewhere, however. The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.5% lower and five S&P 500 sectors closed in the red.

Market participants were digesting the Consumer Price Index (CPI) report for February, which showed inflation rising at a slower-than-expected pace, providing a measure of relief to markets after last month's hotter-than-expected reading. On a year-over-year basis, total CPI was up 2.8% versus 3.0% in January and core-CPI was up 3.1% versus 3.2% in January.

Inflation is still sticking above the Fed's 2.0% target and the uncertainty around US trade policy potentially pressuring prices higher tempered some enthusiasm about the report. The tariffs on steel and aluminum imports imposed by the US has caused a ripple effect, leading Canada and the EU to announce retaliatory measures.

The market's expectations for rate cuts by the Fed were little changed by the data. There is a 80.0% probability of at least a 25 basis points rate cut to 4.00-4.25% at the June FOMC meeting versus a 84.2% likelihood a day ago and a 78.7% probability a week ago, according to the CME FedWatch Tool.

The Treasury market also had a muted response to the data. The 10-yr yield rose three basis points to 4.32% and the 2-yr yield rose five basis points to 3.99%. On a related note, today's $39 billion 10-yr note reopening received solid demand.

• Dow Jones Industrial Average: -1.5% YTD
• S&P 500: -4.5% YTD
• S&P Midcap 400: -6.4% YTD
• Nasdaq Composite: -9.5%
• Russell 2000: -9.5% YTD

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index 11.2%; Prior 20.4%
• February CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.5%, February Core CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.4%
  • The key takeaway from the report is that inflation overall is still sticking comfortably above the Fed's 2.0% target, and now with tariff actions ramping up -- and "reciprocal tariffs" coming April 2 -- confidence has been shaken that future inflation reports will convey undeniably pleasing inflation data.
• The Treasury Budget for February showed a deficit of $307.0 billion compared to a deficit of $296.3 billion in the same period a year ago. The February deficit resulted from outlays ($603.4 billion) exceeding receipts ($296.4 billion). The Treasury Budget data are not seasonally adjusted so the February deficit cannot be compared to the January deficit of $128.6 billion.
  • The key takeaway from the report is that the deficit now stands at a record $1.15 trln through the first five months of the fiscal year, driven in part by rising Medicare costs and increasing interest payments on government debt.

Looking ahead, market participants receive the following economic data on Thursday:

• 8:30 ET: February PPI (Briefing.com consensus 0.3%; prior 0.4%), Core PPI (Briefing.com consensus 0.3%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 228,000; prior 221,000), and Continuing Claims (prior 1.897 mln)
• 10:30 ET: Weekly natural gas inventories (prior -80 bcf)