Market participants awaiting the conclusion of tomorrow's Fed meeting came away with a slightly disappointing view of inflation on Tuesday, sending all three major benchmarks to new 52-week intraday highs.
Although November's CPI report was broadly in line with estimates, continued toughness in accommodation and services sectors suggests the central bank will not move to cut rates as quickly as traders had hoped.
The central bank's interest rate group, the Federal Open Market Committee (FOMC), wraps up the Fed's next meeting on Wednesday and is widely expected to leave the key short-term interest rate unchanged at a 22-year high.
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What market participants really want to know is when the Fed will move to cut rates – and the latest CPI report suggests they'll have to wait longer than they thought.
According to CME Group's FedWatch tool, interest rate traders now estimate the likelihood that the Fed will implement its first quarter-point rate cut in March at 42%, compared to 54% a week ago. Meanwhile, the probability of a first quarter-point cut in May rose to 50% from 41% a week ago.
“The CPI report represents an interesting start to 2024,” said Stephen Kolano, chief investment officer at Integrated Partners. “A big tug of war in the first half of the year will be market expectations for early rate cuts versus the Fed's stance that inflation will remain above target and rates will have to stay higher for longer. I do think the market could be a bit ahead of itself, with the possibility of rate cuts as early as March.
Oracle declines in outlook
In individual stock news oracle (ORCL) slumped 12.5% after the tech giant late Monday reported fiscal second-quarter revenue and quarterly revenue guidance that fell short of analysts' estimates.
The company's optimistic revenue forecast for its cloud computing business – which competes with heavyweights Amazon.com (AMZN) Amazon Web Services and Azure from Microsoft (MSFT), a highly valued Dow Jones stock, continues the trend of slowing sales growth.
ORLC stock's selloff on Tuesday wiped out about $39 billion in market capitalization. For comparison: That's more than the entire market value of Electronic Arts (EA).
Shares elsewhere Hasbro (HAS) fell after the toymaker said it would cut nearly a fifth of its workforce due to weak sales of toys and games this holiday season.
Last but not least, Warren Buffett Berkshire Hathaway (BRK.B) has reduced its stake P.S (HPQ) has risen by nearly half in the past two months, regulatory filings show. HP has been part of the Berkshire Hathaway portfolio since Buffett initiated an investment in early 2022.
As for the most important indices, these are Dow Jones Industrial Average added 0.5% to 36,577 S&P 500 rose 0.5% to 4,643, and the Nasdaq Composite rose 0.7% to 14,533.
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