Stock market today: Wall Street rises more as inflation keeps cooling
By STAN CHOE
AP Business Writer
NEW YORK (AP) — Stocks climbed Tuesday after a cooler reading on inflation cemented Wall Street’s bets for the Federal Reserve to hold off on hiking interest rates this week.
The S&P 500 was 0.6% higher in early trading, ticking further into heights it hasn’t touched since April 2022. The Dow Jones Industrial Average was up 184 points, or 0.5%, at 32,250, as of 9:40, while the Nasdaq composite was 0.7% higher.
The U.S. stock market has been on a roll amid hopes the economy can avoid a severe recession and inflation will fall enough for the Federal Reserve to take it easier on its rate increases. Tuesday’s report showed that food, fuel and other prices for consumers were 4% higher in May than a year earlier, the latest slowdown from its peak above 9% last summer.
The data immediately sent yields falling in the bond market as traders amped up bets for the Fed on Wednesday to announce no change to interest rates. If it does, that would mark the first meeting in more than a year where it doesn’t hike rates.
The Fed has already pulled its benchmark short-term rate up to its highest level since 2007, which has slowed inflation but has also helped cause several U.S. bank failures and a contraction in the manufacturing industry.
Technology and other high-growth stocks are seen as the biggest beneficiaries of easier interest rates, and they were leading the market. A 1.5% gain for chipmaker Nvidia and a 1.2% rise for Microsoft were two of the biggest forces pushing the S&P 500 higher.
Oracle got an additional boost after it reported stronger profit for the latest quarter than expected. It climbed 4.5%, as it also announced plans to develop artificial-intelligence services for organizations.
A rush into AI has helped a select group of stocks to huge gains this year, driving much of the stock market’s rally. That’s raised concerns about a possible bubble, though supporters say AI is the next revolution to remake the economy.
A survey of global fund managers by Bank of America found the majority believe widespread adoption of AI in the next two years will increase profits, according to a BofA Global Research report.
That survey, though, also said the majority of fund managers believe the Fed is still not done hiking interest rates. Many traders expect the Fed to resume raising rates in July, even if it holds steady this week.
Tuesday’s inflation report showed that not only is overall inflation still too high, so are prices underneath the surface. The Fed prefers to look at inflation after stripping out food, fuel and housing costs, hoping to get a better view of where the trend is heading. Such “supercore” inflation is still above the Fed’s comfort level.
The worry is that additional hikes by the Fed will mean more pressure on the U.S. banking system when it’s already cracked under the weight of much higher rates. Bank customers are pulling their deposits in search of higher yields at money-market funds. At the same time, high rates are knocking down the values of bonds that banks bought and other investments they made when rates were low.
Three high-profile U.S. bank failures since March have shaken confidence in the system, and that’s caused some banks to make it tougher for households and businesses to get loans. That puts additional brakes on the economy, raising the risk of a recession.
Zions Bancorp. fell 4.1% after it appeared to cut its forecast for upcoming net interest income to “decreasing” from “moderately decreasing.”
In the bond market, the yield on the 10-year Treasury dipped to 3.73% from 3.74% late Monday. It helps set rates for mortgages and other important loans.
The two-year yield, which moves more on expectations for the Fed, slipped to 4.54% from 4.58%.
In markets abroad, Hong Kong’s Hang Seng rose 0.6% after China’s central bank lowered its one-week lending rate for the first time since last summer. That appeared to reflect official concern about the health of China’s economic recovery after growth in factory and consumer activity weakened.
Stocks were also modestly higher across much of the rest of Asia and Europe. Japan’s Nikkei 225 jumped 1.8%.
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AP Business Writers Matt Ott and Joe McDonald contributed.
