US Stocks Rally On Cooling Price Pressures, Softening Job Market: Investors Eye Fed Hike Cycle's Conclusion

A lower-than-expected producer inflation and higher-than-expected unemployment claims boosted risk appetite on Thursday, with all major U.S. equity indices posting sharp gains as investors increased speculations about the end of the rate hike cycle after the Fed's May meeting. 

Interest-rate sensitive mega caps, such as Tesla, Inc. TSLA Apple, Inc. AAPL, Amazon, Inc. AMZN, and Alphabet, Inc. GOOGL, have gained more than 2% on the day. A weaker greenback, with EUR/USD hitting fresh yearly highs, also supported stock advances. 

Cues From Thursday's Trading:

Producer price inflation (PPI) decreased by 0.5% in March, falling short of forecasts for a flat monthly reading, while weekly unemployment claims surged by 11,000 to 239,000, above expectations. The two findings signal that a cooling trend in pricing pressures and the labor market is already underway.

Stocks rallied across the board as investors wagered the Federal Reserve will stop raising in June and deliver the first reduction as early as July, according to latest CME Group FedWatch tool.

The S&P 500 index gained 0.7%, returning above 4,100 points, the Dow Jones Industrial Average grew 0.4%, while the tech-heavy Nasdaq 100 outperformed, gaining 1.4%. Small caps in the Russell 2000 index were also higher, up 0.9%. 

Analyst Color:

The bond market is saying the Fed is done raising rates, said FS Insight head of research Tom Lee. He noted the two-year Treasury yield is trading about 83 basis points lower than the midpoint of the fed funds rate.

If the Fed is done with raising rates sooner, it could mean the central bank will tolerate further easing of financial conditions, Lee said. He thinks this is particularly likely if the markets worry about credit tightening as commercial real estate and commercial mortgage-backed securities and other commercial lending markets show stress.

“We believe bears remain trapped and April is going to be a generally strong month (based upon “rule of first five days”),” the analyst said. He also raised the specter of April panning out to be a back-end-loaded month like March.

“We would use any weakness from a post-March CPI sell-off to add to equity exposure,” Lee said.

Thursday's Trading In Major US Equity ETFs: 

In midday trading Thursday, the SPDR S&P 500 ETF Trust SPY edged 0.76% higher to $411.12, the SPDR Dow Jones Industrial Average ETF DIA rose 0.3% to $338.36 and the Invesco QQQ Trust QQQ held steady at $317.62, according to Benzinga Pro data.

Among U.S. equity sectors, the Metals & Mining Select Sector SPDR Fund XME outperformed, up 1.8%, followed by the Communication Services Select Sector SPDR Fund (ARCA XLC) up 1.7%. The Utilities Select Sector SPDR Fund XLU fell 1.4%, and the Real Estate Select Sector SPDR Fund XLRE eased 0.9%. 

Latest Economic Data:

• The Bureau of Labor Statistics reported that producer price inflation fell 0.5% in March, the biggest drop since April 2020, and well below forecasts of a flat print. Core PPI also dropped 0.1%, against a 0.3% expected increase. 

• The Labor Department reported an increase in jobless claims by 11,000 to 239,000 for the week ending April 8. The number came in higher-than-expected (232,000). 

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Stocks In Focus:

• Harley-Davidson, Inc. HOG fell nearly 4% after it announced the departure of its CFO Gina Goetter just after the company reports its financial results later this month. Goetter is assuming a similar role at toymaker Hasbro, Inc. HAS.
• Newmont Corporation NEM and Freeport-McMoran, Inc. FCX gained 3% as gold prices surged further, benefitting metal mining corporations.

• Enphase Energy, Inc. ENPH rose over 7%, after HSBC initiated with a Buy rating and as Deutsche Bank and Bank of America recently revised the price target higher. 

• Netflix, Inc. NFLX spiked over 4%, on the back-trimmed expectations on future interest rates. 
• Delta Airlines, Inc. DAL fell 1% after the company reported lower-than-expected earnings in Q1. Fastenal Company FAST fell 2% as the company reported lower-than-expected revenues in Q1. 

Top Analysts’ Call

• Merck & Co, Inc. MRK: Citigroup upgrades from Neutral to Buy and raises price target from $105 to $130
• Costco Wholesale Corp. COST: William Blair initiates at Outperform
• General Motors Co. GM: Mizuho initiates with a Neutral rating and a $39 price target
• Broadcom, Inc. AVGO: Benchmark initiates with a Buy rating and $770 price target
• McDonald's Corp. MCD: Oppenheimer raise price target from $304 to $315, keeps Outperform rating. 

Commodities, Bonds, Forex And Other Global Equity Markets:

Crude oil eased, down 0.9%, with a barrel of WTI-grade crude trading at $82.50. The United States Oil Fund ETF USO was 0.75% lower to $71.89 per share.  

Treasury yields were mostly flat on the day, with the 10-year yield ticking up by 2 basis points to 3.42% and the two-year yield stable at 3.94%. The iShares 20+ Year Treasury Bond ETF TLT was 0.4% lower on the day. 

The dollar tumbled, with the U.S. dollar index falling 0.6% and marking the third straight session of declines. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, rose 0.7% to 1.1054, hitting fresh yearly highs.   

All European equity indices, except Italy, closed the session in the green. The iShares MSCI Eurozone ETF EZU was 0.8% higher.  

Gold rallied 1.2% to $2,039/oz. The SPDR Gold Trust GLD was 1.3% higher to $189.54. Silver also gained 1.2% to $25.78, with the iShares Silver Trust SLV trading 1.1% higher to $23.68 per share. Bitcoin rose 1.6% to $30,383.

Staff writer Piero Cingari updated this report midday Wednesday.  

Image generated using AI via Midjourney.