Zinger Key Points
- December's Producer Price Index rose 3.3%, below forecasts, easing inflation fears and bolstering hopes for future Fed policy easing.
- Tesla surged 3% after Morgan Stanley raised its price target to $430, citing growth in robotaxi and rideshare services.
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Investors found relief on Tuesday as December’s producer prices came in below expectations, alleviating inflation concerns that have threatened to derail the Federal Reserve’s plans for potential policy easing during 2025.
Major U.S. indices moved higher in early trading as Treasury yields stalled, giving traders space to reassess interest rate expectations ahead of Wednesday’s pivotal consumer inflation report.
Softer Producer Inflation Provides Market Oxygen
In December 2024, the Producer Price Index rose 3.3% year-over-year, slightly below forecasts of 3.4%. Core producer inflation, which excludes volatile food and energy prices, remained steady at 3.5% annually, but monthly core prices flattened, reflecting softer price pressures across underlying components.
The S&P 500 – tracked by the SPDR S&P 500 ETF Trust SPY – gained 0.5%, while the tech-heavy Nasdaq 100, mirrored by the Invesco QQQ Trust, Series 1 QQQ rose by a similar margin. Small caps led the charge, with the iShares Russell 2000 ETF IWM up 0.9%, as traders rotated into economic-sensitive stocks battered by recent selloffs.
Blue-chip stocks, however, lagged as energy shares took a breather following a multi-day rally.
Still, Wall Street's broader gains may remain capped as investors await further clarity from Wednesday’s consumer price index report. Economists predict CPI to rise from 2.7% to 2.9% year-over-year in December, while core inflation is forecast to hold steady at 3.3%.
Treasury yields held steady, signaling that traders are pausing adjustments to their interest rate cut expectations.
According to the CME FedWatch tool, the probability of a 25-basis-point rate cut rose slightly to 60% by July 2025 and 70% by October.
Tesla Leads Discretionary Stocks Higher
Consumer discretionary stocks were among the day's top performers, driven by a 3% rally in Tesla Inc. TSLA.
Shares of the EV giant climbed after a bullish note from Morgan Stanley, which raised Tesla's price target from $400 to $430 and projected a best-case scenario of $800. The firm cited the company's growing potential in autonomous rideshare and robotaxi services as key drivers for long-term growth.
The Consumer Discretionary Select Sector SPDR Fund XLY advanced 1%, reflecting broad strength across the sector.
Tech and Semiconductors Rebound
Tech stocks rebounded after several days of volatility, with semiconductors leading the way.
Nvidia Corp. NVDA rose more than 2%, while Micron Technology Inc. MU and Palantir Technologies Inc. PLTR also gained. The iShares Semiconductor ETF SOXX climbed nearly 1%, snapping a three-day losing streak during which it had dropped over 3%.
Chinese Stocks Surge On Policy Support
Chinese equities rallied as news of government intervention boosted investor sentiment.
The China Securities Regulatory Commission announced plans to collaborate with the People's Bank of China to build a market stabilization mechanism, signaling support for the country's struggling markets.
Shares of PDD Holdings Inc. PDD rose over 3%, while Baidu Inc. BIDU and Alibaba Group Holding Ltd. BABA advanced 2.4% and 2%, respectively.
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